OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
FUNCO, INC.
AT
$24.75 NET PER SHARE
BY
B&N ACQUISITION CORPORATION
A WHOLLY-OWNED INDIRECT SUBSIDIARY OF
▇▇▇▇▇▇ & ▇▇▇▇▇, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME,
ON TUESDAY, JUNE 13, 2000, UNLESS THE OFFER IS EXTENDED.
THIS OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER (THE
"MERGER AGREEMENT"), DATED AS OF MAY 4, 2000, BY AND AMONG FUNCO, INC., A
MINNESOTA CORPORATION (THE "COMPANY"), ▇▇▇▇▇▇ & ▇▇▇▇▇, INC., A DELAWARE
CORPORATION ("PARENT"), AND B&N ACQUISITION CORPORATION, A MINNESOTA CORPORATION
AND WHOLLY-OWNED INDIRECT SUBSIDIARY OF PARENT ("PURCHASER"). THE BOARD OF
DIRECTORS OF THE COMPANY AND A SPECIAL COMMITTEE OF SUCH BOARD, FORMED IN
ACCORDANCE WITH SECTION 302A.673 OF THE MINNESOTA BUSINESS CORPORATION ACT, HAVE
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, OUR TENDER OFFER AND OUR PROPOSED
MERGER WITH THE COMPANY. THE BOARD OF DIRECTORS OF THE COMPANY AND ITS SPECIAL
COMMITTEE HAVE DETERMINED THAT THE OFFER AND MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMEND THAT THE
SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF THE COMPANY (THE "SHARES")
WHICH, TOGETHER WITH ALL SHARES ALREADY OWNED, DIRECTLY OR INDIRECTLY, BY PARENT
OR PURCHASER, WOULD REPRESENT AT LEAST 51% OF THE TOTAL VOTING POWER OF THE
OUTSTANDING SECURITIES OF THE COMPANY ENTITLED TO VOTE IN THE ELECTION OF
DIRECTORS OR IN A MERGER, CALCULATED ON A FULLY-DILUTED BASIS, ON THE DATE OF
PURCHASE (THE "MINIMUM CONDITION") AND (2) THE EXPIRATION OR TERMINATION OF ANY
APPLICABLE WAITING PERIODS UNDER THE ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ ANTITRUST IMPROVEMENTS
ACT OF 1976, AS AMENDED, BEFORE THE EXPIRATION DATE OF THE OFFER. THE OFFER IS
ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE.
SEE SECTION 14.
IMPORTANT
Any shareholder who desires to tender all or any portion of such
shareholder's Shares should either (i) complete and sign the Letter of
Transmittal (or facsimile thereof) that accompanies this Offer to Purchase in
accordance with the instructions in the Letter of Transmittal and (a) mail or
deliver the Letter of Transmittal, together with the certificate(s) evidencing
the tendered shares and all other required documents, to The Bank of New York,
as Depositary, at its address set forth on the back cover of this Offer to
Purchase or (b) tender such Shares pursuant to the procedures for book-entry
transfer set forth in Section 3 or (ii) request his or her broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
him or her. A shareholder having Shares registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such
broker, dealer, commercial bank, trust company or other nominee if he or she
desires to tender such Shares.
Any shareholder who desires to tender Shares and cannot deliver such Shares
and all other required documents to the Depositary by the expiration of the
Offer or who cannot comply with the procedures for book-entry transfer on a
timely basis must tender such Shares pursuant to the guaranteed delivery
procedure set forth in Section 3.
Questions and requests for assistance, or for additional copies of this
Offer to Purchase, the Letter of Transmittal and other related materials, may be
directed to MacKenzie Partners, Inc., as Information Agent, at its address and
telephone numbers set forth on the back cover of this Offer to Purchase.
Shareholders may also contact brokers, dealers, commercial banks or trust
companies for assistance concerning the Offer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
MAY 16, 2000
TABLE OF CONTENTS
PAGE
----
SUMMARY TERM SHEET......................................................................................... 1
INTRODUCTION............................................................................................... 5
THE OFFER.................................................................................................. 8
SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE......................................................... 8
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES............................................... 10
SECTION 3. PROCEDURES FOR TENDERING SHARES............................................................. 10
SECTION 4. WITHDRAWAL RIGHTS........................................................................... 13
SECTION 5. CERTAIN TAX CONSIDERATIONS.................................................................. 14
SECTION 6. PRICE RANGE OF SHARES; DIVIDENDS............................................................ 15
SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY.................................................. 15
SECTION 8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT......................................... 17
SECTION 9. SOURCE AND AMOUNT OF FUNDS.................................................................. 18
SECTION 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.......................................... 19
SECTION 11. PURPOSE OF THE OFFER AND MERGER; PLANS FOR THE COMPANY; MERGER AGREEMENT; SHAREHOLDER
AGREEMENT AND OTHER AGREEMENTS; OTHER MATTERS............................................... 21
SECTION 12. DIVIDENDS AND DISTRIBUTIONS................................................................. 35
SECTION 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NASDAQ NATIONAL MARKET LISTING AND
EXCHANGE ACT REGISTRATION................................................................... 35
SECTION 14. CERTAIN CONDITIONS OF THE OFFER............................................................. 36
SECTION 15. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.............................................. 37
SECTION 16. FEES AND EXPENSES........................................................................... 40
SECTION 17. MISCELLANEOUS............................................................................... 40
SCHEDULES
SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER..................................... I-1
i
SUMMARY TERM SHEET
▇▇▇▇▇▇ & ▇▇▇▇▇, Inc., through its wholly-owned indirect subsidiary, B&N
Acquisition Corporation, is offering to purchase all of the outstanding common
stock of Funco, Inc. for $24.75 per share, net to the seller in cash. The
following are some of the questions you, as a shareholder of Funco, Inc., may
have and the answers to those questions. We urge you to carefully read the
remainder of this Offer to Purchase and the accompanying Letter of Transmittal
because the information in this summary is not complete and additional important
information is contained in the remainder of this Offer to Purchase and the
Letter of Transmittal.
WHO IS OFFERING TO BUY MY SECURITIES?
Our name is B&N Acquisition Corporation. We are a Minnesota corporation
formed for the purpose of making a cash tender offer for all of the outstanding
common stock of Funco, Inc. We are a wholly-owned indirect subsidiary of ▇▇▇▇▇▇
& ▇▇▇▇▇, Inc., a Delaware corporation. See "Introduction."
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are seeking to purchase all of the outstanding common stock, par value
$.01 per share, of Funco, Inc. See "Introduction."
HOW MUCH ARE YOU OFFERING TO PAY FOR MY SECURITIES AND WHAT IS THE
FORM OF PAYMENT? WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
We are offering to pay $24.75 per share, net to you, in cash. If you are
the record owner of your shares and you tender your shares to us in the offer,
you will not have to pay brokerage fees, commissions or similar expenses. If you
own your shares through a broker or other nominee, and your broker tenders your
shares on your behalf, your broker or nominee may charge you a fee for doing so.
You should consult your broker or nominee to determine whether any charges will
apply. See "Introduction."
DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
▇▇▇▇▇▇ & ▇▇▇▇▇, Inc., our parent company, will provide us with sufficient
funds to purchase all shares validly tendered and not withdrawn in the offer and
to complete the merger which is expected to follow the successful completion of
the offer. It is anticipated that all of such funds will be readily available
from ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc.'s corporate funds and existing credit facility. See
"Section 9--Source and Amount of Funds."
IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION TO TENDER IN THE OFFER?
We do not think our financial condition is relevant to your decision
whether to tender in the offer because the form of payment consists solely of
cash and we believe our funding will be readily obtainable. Additionally, the
offer is not subject to any financing condition and, if we consummate the offer,
we will acquire all remaining shares for the same cash price in the merger. See
"Section 9--Source and Amount of Funds."
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have at least until 12:00 midnight, New York City time, on
Tuesday, June 13, 2000, to tender your shares in the offer. Further, if you are
unable to deliver the required documents in order to make a valid tender by that
time, you may be able to use the guaranteed delivery procedure which is
described later in this Offer to Purchase. In addition, if we extend the
expiration date of the offer or if we decide to include a subsequent offering
period, as described below, you will have an additional opportunity to tender
your shares. See "Section 1--Terms of the Offer; Expiration Date" and
"Section 3--Procedures for Tendering Shares."
CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
Subject to the terms of our merger agreement with Funco, Inc., we can
extend the offer. We have agreed in the merger agreement that (i) we will extend
the expiration date of the offer for an aggregate of ten (10) additional
business days if on the expiration date any conditions to the offer have not
been satisfied or waived and (ii) we may, in our sole discretion, extend the
expiration date for additional periods as we may determine to be appropriate to
permit any conditions to the offer that have not been satisfied or waived to be
satisfied, but not beyond August 4, 2000. In addition, we may extend the offer
for any period required by any rule, regulation, interpretation or position of
the Securities and Exchange Commission. See "Section 1--Terms of the Offer;
Expiration Date."
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we decide to extend the offer, we will inform The Bank of New York, the
depositary for the offer, of that fact and will make a public announcement of
the extension, not later than 9:00 a.m., New York City time, on the business day
after the date on which the offer was to expire. See "Section 1--Terms of the
Offer; Expiration Date."
WILL THERE BE A SUBSEQUENT OFFERING PERIOD?
We may elect to provide a subsequent offering period, although we currently
have no intention to do so. If we do provide a subsequent offering period, we
will elect to do so not later than five (5) business days before the date on
which the offer is to expire. "Section 1--Terms of the Offer; Expiration Date."
WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
We are not obligated to purchase any shares that you validly tender unless
the number of shares validly tendered and not withdrawn before the expiration
date of the offer represents, together with shares already owned, directly or
indirectly, by ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc. or B&N Acquisition Corporation, if any, in
the aggregate, at least 51% of the total voting power of the outstanding
securities of Funco, Inc. entitled to vote in the election of directors or in a
merger, calculated on a fully diluted basis, on the date of purchase.
We are also not obligated to purchase any shares which you validly tender
if, among other things, the applicable waiting period under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, has not
expired or been terminated.
Other conditions to the offer are described in "Section 14--Certain
Conditions of the Offer."
HOW DO I TENDER MY SHARES?
If you are a record holder, you may tender your shares by delivering the
certificates representing your shares, together with a completed Letter of
Transmittal and any other documents required, to The Bank of New York, the
depositary for the offer, not later than the time the offer expires. If your
shares are held in street name, the shares can be tendered by your nominee
through The Depository Trust Company.
If you are unable to deliver the required documents to The Bank of New York
by the expiration of the offer, you may get a little extra time to do so by
having a broker, a bank or other fiduciary which is a member of the Securities
Transfer Agents Medallion Program or other eligible institution guarantee that
the missing items will be received by The Bank of New York within three (3)
trading days. A trading day is any day on which The Nasdaq National Market is
open for business. However, The Bank of New York must receive the missing items
within that three (3) trading day period. See "Section 3--Procedures for
Tendering Shares."
HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a properly executed written notice of
withdrawal (or a facsimile of one) with the required information to The Bank of
New York while you still have the right to withdraw the shares. See "Section
4--Withdrawal Rights."
2
UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You can withdraw shares at any time until the offer has expired and, if we
have not accepted your shares for payment by July 14, 2000, you can withdraw
them at any time after such time until we accept shares for payment. This right
to withdraw will not apply to shares tendered during a subsequent offering
period, if any. See "Section 1--Terms of the Offer; Expiration Date" and
"Section 4--Withdrawal Rights."
WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTION?
The receipt of cash by you in exchange for your shares pursuant to the
offer, the merger or upon exercise of dissenters' rights is a taxable
transaction for federal, and possibly state, income tax purposes. In general,
you will recognize capital gain or loss equal to the difference between the
adjusted tax basis of your shares and the amount of cash that you receive from
us for the shares. We encourage you to consult with your own tax advisor about
the particular effect a tender would have on you. See "Section 5--Certain Tax
Considerations."
WHAT DOES THE BOARD OF DIRECTORS OF FUNCO, INC. THINK OF THE OFFER?
We are making the offer pursuant to the merger agreement. The Board of
Directors of Funco, Inc. and a special committee of such Board, formed in
accordance with Section 302A.673 of the Minnesota Business Corporation Act, have
unanimously approved the merger agreement, our tender offer and our proposed
merger with Funco, Inc. The Board of Directors of Funco, Inc. and its special
committee have determined that the offer and merger are fair to and in the best
interests of Funco, Inc. and its shareholders and unanimously recommend that the
shareholders of Funco, Inc. accept the offer and tender their shares. See
"Section 10--Background of the Offer; Contacts with the Company" and
"Section 11--Purpose of the Offer and Merger; Plans for the Company; Merger
Agreement; Shareholder Agreement and Other Agreements; Other Matters."
HAVE ANY SHAREHOLDERS AGREED TO TENDER THEIR SHARES?
Yes. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the Chief Executive Officer of Funco, Inc., has
agreed to tender all of his shares (but in no event more than 19.9% of all
outstanding shares of Funco, Inc., in the aggregate) in the offer. See
"Introduction" and "Section 11--Purpose of the Offer and Merger; Plans for the
Company; Merger Agreement; Shareholder Agreement and Other Agreements; Other
Matters."
IF A MAJORITY OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL FUNCO,
INC. CONTINUE AS A PUBLIC COMPANY?
No. Following our purchase of the shares in the offer, we expect to
consummate the merger. If the merger takes place, Funco, Inc. will be owned
indirectly by ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc. Even if the merger does not take place, if we
purchase all the tendered shares, there may be so few remaining shareholders and
publicly held shares that Funco, Inc.'s common stock will no longer be eligible
to be quoted on The Nasdaq National Market, there may not be a public trading
market for Funco, Inc.'s stock, and Funco, Inc. may cease making filings with
the Securities and Exchange Commission or otherwise cease being required to
comply with the rules of the Securities and Exchange Commission relating to
publicly held companies. See "Section 13--Effect of the Offer on the Market for
the Shares, Nasdaq National Market Listing and Exchange Act Registration."
WILL THE OFFER BE FOLLOWED BY A MERGER IF ALL FUNCO, INC. SHARES ARE NOT
TENDERED IN THE OFFER?
Yes. If we acquire at least 51% of the outstanding shares of Funco, Inc.,
on a fully diluted basis, pursuant to the offer, B&N Acquisition Corporation
will be merged with and into Funco, Inc. If that merger takes place, ▇▇▇▇▇▇ &
▇▇▇▇▇, Inc. will indirectly own all of the shares of Funco, Inc. and all
shareholders of Funco Inc. (other than B&N Acquisition Corporation, ▇▇▇▇▇▇ &
▇▇▇▇▇, Inc. and their wholly-owned direct or indirect subsidiaries and
shareholders of Funco, Inc. properly exercising dissenters' rights) will receive
$24.75
3
per share (or any higher price per share that is paid in the offer). See
"Section 13--Effect of the Offer on the Market for the Shares, Nasdaq National
Market Listing and Exchange Act Registration."
IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If the merger described above takes place, shareholders (other than those
properly exercising dissenters' rights under Minnesota law) not tendering in the
offer will receive the same amount of cash per share that they would have
received had they tendered their shares in the offer. Therefore, if the merger
takes place, the only differences to you between tendering your shares and not
tendering your shares are that you will be paid earlier, you will not have
dissenters' rights if you tender your shares into the offer and you may have
different income tax results because of the longer period of time during which
you would hold the shares that are not purchased pursuant to the offer.
However, even if the merger does not take place, the number of shareholders
and shares of Funco, Inc. that are still in the hands of the public may be so
small that there no longer will be an active public trading market (or,
possibly, any public trading market) for Funco, Inc.'s common stock. The shares
may no longer be eligible to be quoted on The Nasdaq National Market, and Funco,
Inc. may cease making filings with the Securities and Exchange Commission or
otherwise cease being required to comply with the rules of the Securities and
Exchange Commission relating to publicly held companies. See
"Section 13--Effect of the Offer on the Market for the Shares; Nasdaq National
Market Listing and Exchange Act Registration" and "Section 15--Certain Legal
Matters and Regulatory Approvals."
WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On April 5, 2000, the last full trading day before Funco, Inc. announced
receipt of our first merger proposal, the closing price per share of Funco, Inc.
common stock on The Nasdaq National Market was $16 13/16. On May 4, 2000, the
last full trading day before we announced the signing of the merger agreement,
the closing price per share of Funco, Inc. common stock on The Nasdaq National
Market was $24 5/16. On May 15, 2000, the last full trading day before we
commenced the offer, the closing price per share of Funco, Inc. common stock on
The Nasdaq National Market was $24 7/16. Between January 3, 2000 and May 4,
2000, the closing price of a share of Funco, Inc. common stock ranged between
$9 11/16 and $24 5/8. We advise you to obtain a recent quotation for shares of
Funco, Inc.'s common stock in deciding whether to tender your shares. See
"Section 6--Price Range of Shares; Dividends."
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE OFFER?
You can call MacKenzie Partners, Inc. at (▇▇▇) ▇▇▇-▇▇▇▇ (toll free) or
(▇▇▇) ▇▇▇-▇▇▇▇ (collect). MacKenzie Partners, Inc. is acting as the information
agent for our offer.
4
TO THE HOLDERS OF COMMON STOCK OF FUNCO, INC.:
INTRODUCTION
B&N Acquisition Corporation, a Minnesota corporation ("Purchaser") and a
wholly-owned indirect subsidiary of ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc., a Delaware corporation
("Parent"), hereby offers to purchase all of the outstanding shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
Funco, Inc., a Minnesota corporation (the "Company"), at a purchase price of
$24.75 per Share (such price, or such higher price per Share as may be paid in
the Offer, being referred to herein as the "Per Share Amount"), net to the
seller in cash, without interest thereon, upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, together with any supplements or amendments, collectively
constitute the "Offer").
Tendering shareholders who are record owners of Shares and tender directly
to the Depositary (as defined below) will not be obligated to pay brokerage fees
or commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the transfer and sale of Shares pursuant to
the Offer or the Merger. Shareholders of the Company (the "Shareholders") who
hold their Shares through a broker or bank should consult such institution as to
whether it charges any service fee. Purchaser will pay all fees and expenses of
The Bank of New York, as Depositary (the "Depositary"), and MacKenzie Partners,
Inc., as Information Agent (the "Information Agent"), incurred in connection
with the Offer. See Section 16.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of May 4, 2000 (the "Merger Agreement"), by and among the Company, Parent and
Purchaser. The Merger Agreement provides, among other things, that following the
consummation of the Offer and on the same business day as, and promptly
following, satisfaction or, to the extent permitted under the Merger Agreement,
waiver of all other conditions to the Merger, and in accordance with the
applicable provisions of the Minnesota Business Corporation Act ("MBCA"),
Purchaser will merge with and into the Company (the "Merger"). Upon consummation
of the Merger, the Company will be the surviving corporation of the Merger and a
wholly- owned indirect subsidiary of Parent. Thereupon, each outstanding Share
(other than (i) Shares held of record by Parent or Purchaser or any direct or
indirect wholly-owned subsidiary of Parent and (ii) Shares held by Shareholders,
if any, who properly exercise, preserve and perfect dissenters' rights under the
MBCA) will be converted into and represent the right to receive $24.75 in cash,
or any higher price that may be paid per Share in the Offer, without interest.
The Merger shall become effective upon the filing of Articles of Merger with the
Secretary of State of the State of Minnesota (the "Effective Time").
Simultaneously with the execution of the Merger Agreement, and as a
condition and inducement to Parent's and Purchaser's entering into the Merger
Agreement, Parent entered into a Shareholder Agreement, dated as of May 4, 2000
(the "Shareholder Agreement"), with ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the Chief Executive Officer
of the Company. ▇▇. ▇▇▇▇▇▇ has represented in the Shareholder Agreement that he
is the record and beneficial owner of Shares which represent more than 19.9% of
the issued and outstanding Shares as of May 4, 2000. Pursuant to the Shareholder
Agreement, ▇▇. ▇▇▇▇▇▇ has agreed to tender all of his Shares (but in no event
more than 19.9% of all outstanding Shares, in the aggregate) in the Offer.
The Merger Agreement and Shareholder Agreement are more fully described in
Section 11.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") AND A SPECIAL
COMMITTEE OF THE COMPANY BOARD (THE "SPECIAL COMMITTEE"), FORMED IN ACCORDANCE
WITH SECTION 302A.673 OF THE MBCA, HAVE UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE OFFER AND THE MERGER. THE COMPANY BOARD AND THE SPECIAL COMMITTEE
HAVE DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY AND THE SHAREHOLDERS AND UNANIMOUSLY RECOMMEND THAT THE
SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES.
THE FACTORS CONSIDERED BY THE COMPANY BOARD AND SPECIAL COMMITTEE IN
ARRIVING AT THEIR DECISION TO ADOPT AND APPROVE THE MERGER AGREEMENT, THE OFFER
AND THE MERGER AND TO RECOMMEND THAT SHAREHOLDERS OF THE COMPANY ACCEPT THE
OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER ARE DESCRIBED IN THE COMPANY
SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9"),
WHICH HAS
5
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") AND IS BEING
MAILED TO SHAREHOLDERS OF THE COMPANY CONCURRENTLY HEREWITH.
▇▇▇▇▇▇▇ ▇▇▇▇▇ & COMPANY, L.L.C. ("▇▇▇▇▇") HAS ACTED AS THE COMPANY'S
FINANCIAL ADVISOR. THE OPINION OF ▇▇▇▇▇, DATED MAY 4, 2000, THAT, AS OF SUCH
DATE, BASED ON AND SUBJECT TO THE ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS
SET FORTH IN ITS WRITTEN OPINION, THE PER SHARE AMOUNT TO BE RECEIVED IN THE
OFFER AND THE MERGER BY THE HOLDERS OF SHARES (OTHER THAN PARENT AND ITS DIRECT
AND INDIRECT WHOLLY-OWNED SUBSIDIARIES AND PERSONS WHO PROPERLY EXERCISE,
PRESERVE AND PERFECT DISSENTERS' RIGHTS UNDER THE MBCA) IS FAIR TO SUCH HOLDERS
FROM A FINANCIAL POINT OF VIEW, IS SET FORTH IN FULL AS AN ANNEX TO THE SCHEDULE
14D-9. SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE SCHEDULE 14D-9 AND SUCH
OPINION CAREFULLY IN THEIR ENTIRETY.
The Offer is conditioned upon, among other things, (1) there having been
validly tendered and not properly withdrawn prior to the expiration of the Offer
that number of Shares which, together with all Shares already owned, directly or
indirectly, by Parent or Purchaser, represents at least 51% of the total voting
power of the outstanding securities of the Company entitled to vote in the
election of directors or in a merger, calculated on a fully diluted basis, on
the date of purchase (the "Minimum Condition") and (2) any applicable waiting
periods under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), having expired or been terminated.
The Company has informed Purchaser that as of April 26, 2000, there were
6,099,135 Shares issued and outstanding, unexercised options to purchase 810,023
shares of Common Stock under the Company's stock option plans, and no other
stock of the Company outstanding or committed to be issued. Neither Parent nor
Purchaser directly or indirectly holds any Shares. Based on this information,
▇▇▇▇▇▇▇▇▇ believes that the Minimum Condition will be satisfied if Purchaser
acquires at least 3,523,671 Shares in the Offer. Certain other conditions to the
Offer are described in Section 14.
The purpose of the Offer, the Merger and the Merger Agreement is to enable
Parent to acquire control of the entire equity interest of the Company. The
Merger Agreement provides that, promptly following the purchase of and payment
for that number of Shares which satisfies the Minimum Condition pursuant to the
Offer, and from time to time thereafter, Parent shall be entitled to designate
on the Company Board (and on each committee of the Company Board), such number
of directors, rounded up to the next whole number, as will give Parent
representation on the Company Board (and on each committee of the Company Board)
equal to the product of (i) the total number of directors on the Company Board
(and on each committee of the Company Board) multiplied by (ii) the percentage
that the number of Shares purchased by Purchaser in the Offer bears to the total
number of outstanding Shares at the time of Parent's designation; provided,
however, that until the Effective Time, Parent and Purchaser shall use their
best efforts to assure that at all times there shall be at least two directors
on the Company Board who were directors on May 4, 2000 and who are not employees
of the Company. The Merger Agreement also provides that certain Company actions
prior to the Effective Time must be approved by Parent. See Section 11.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger Agreement
by the requisite vote of the Shareholders of the Company, if such a vote is
required. See Section 11, Section 14 and Section 15. Under the Company's
Articles of Incorporation, as amended and restated (the "Articles of
Incorporation"), and the MBCA, the holders of Shares have one vote for each
Share owned of record. Subject to the following paragraph, under the Company's
Articles of Incorporation and the MBCA, the affirmative vote of a majority of
the then outstanding Shares is required to approve and adopt the Merger
Agreement and the Merger. Consequently, if the Minimum Condition is satisfied,
Purchaser will have sufficient voting power to approve and adopt the Merger
Agreement and the Merger without the vote of any other shareholders of the
Company.
Under Section 302A.621 of the MBCA, if Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the then outstanding Shares, Purchaser will
be able to consummate the Merger without a vote of the Shareholders. In such
event, Parent and Purchaser will take all necessary and appropriate action to
cause the Merger to become effective as soon as reasonably practicable after
such acquisition without a meeting of the Shareholders. If, however, Purchaser
does not acquire at least 90% of the then outstanding Shares pursuant to the
6
Offer or otherwise, and a vote of the Shareholders is required under the MBCA, a
longer period of time will be required to effect the Merger. See Section 11 and
Section 15.
No dissenters' rights are available in connection with the Offer.
Shareholders may exercise dissenters' rights under the MBCA in connection with
the Merger, however, regardless of whether the Merger is consummated with or
without a vote of the Shareholders.
Certain U.S. federal income tax consequences of the sale of Shares pursuant
to the Offer and the conversion of Shares pursuant to the Merger are described
in Section 5.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE
ANY DECISION IS MADE WITH RESPECT TO THE OFFER.
7
THE OFFER
SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will, and Parent will cause Purchaser to, accept for
payment and pay for all Shares validly tendered on or prior to the Expiration
Date, and not properly withdrawn as permitted by Section 4 below. For purposes
of the Offer, the term "Expiration Date" means 12:00 midnight, New York City
time, on Tuesday, June 13, 2000, unless and until Purchaser extends the period
of time for which the Offer is open in accordance with the terms of the Merger
Agreement, in which event the term "Expiration Date" shall mean the latest time
and date at which the Offer, as so extended, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition and the expiration or termination of any applicable waiting
periods imposed by the HSR Act. The Offer is also subject to certain other
conditions set forth in Section 14 below. If any of these conditions is not
satisfied or if any events specified in Section 14 have occurred prior to the
Expiration Date, Purchaser (i) shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pay for any Shares tendered pursuant to the Offer, and (subject to any
such rules and regulations) may postpone the acceptance for payment of or
payment for any Shares tendered pursuant to the Offer, and (ii) to the extent
permitted under the Merger Agreement, may terminate or amend the Offer as to any
Shares not then paid for and not accept for payment any Shares. Purchaser
acknowledges that Rule 14e-1(c) under the Exchange Act requires Purchaser to pay
the consideration offered or return the Shares tendered promptly after the
termination or withdrawal of the Offer. Purchaser further acknowledges that
Purchaser may not delay acceptance for payment of, or delay payment for, any
Shares upon the occurrence of any of the events specified in Section 14 without
extending the period of time during which the Offer is open.
Purchaser reserves the right (but is not obligated), subject to the terms
of the Merger Agreement, at any time and from time to time, to waive any of the
conditions of the Offer and to make any change in the terms or conditions of the
Offer in its sole discretion; provided, however, that no change or waiver may be
made, without the prior written consent of the Company, that (i) decreases the
price per Share payable in the Offer, (ii) changes the form of consideration
payable in the Offer, (iii) decreases the number of Shares sought in the Offer,
(iv) amends or waives the Minimum Condition or imposes conditions to the Offer
in addition to or different from those set forth in Section 14, (v) except as
provided below, extends the Expiration Date or (vi) amends any terms of the
Offer in any manner adverse to the Shareholders, except, in each case, as
otherwise permitted under the Merger Agreement.
The Merger Agreement provides that, notwithstanding the foregoing, without
the consent of the Company, Purchaser will have the right to extend the
Expiration Date only in the following events: (i) if required by law or (ii) in
the event that any conditions to the Offer are not satisfied or waived on or
before the Expiration Date, in which event Purchaser (a) must extend the
Expiration Date for an aggregate of ten (10) additional business days to the
extent necessary to permit such conditions to be satisfied and (b) may, in
Purchaser's sole discretion, extend the Expiration Date for such additional
periods as it may determine to be appropriate (but not beyond August 4, 2000) to
permit such conditions to be satisfied.
Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by a public announcement thereof, with any
announcement of an extension to be made no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date,
in accordance with the public announcement requirements of Rule 14e-1(d) under
the Exchange Act. Subject to applicable law (including Rules 14d-4(d) and
14d-6(c) under the Exchange Act, which require that material changes in the
information published, sent or given to shareholders in connection with the
Offer be promptly disseminated to shareholders in a manner reasonably designed
to inform them of such changes) and without limiting the manner in which
Purchaser may choose to make any public announcement, Purchaser shall have no
obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a press release to the Dow ▇▇▇▇▇ News
Service.
8
If Purchaser makes a material change in the terms of the Offer or if it
waives a material condition of the Offer, Purchaser will extend the Offer and
disseminate additional tender offer materials to the extent required by Rules
14d-4(d), 14d-6(c) and 14e-1 under the Exchange Act. The minimum period during
which the Offer must remain open following material changes in the terms of the
Offer, other than a change in price or the percentage of securities sought or
the inclusion of or change to a dealer's soliciting fee, will depend upon the
facts and circumstances, including the materiality, of the changes. In the SEC's
view, an offer should remain open for a minimum of five (5) business days from
the date the material change is first published, sent or given to shareholders.
However, a minimum of ten (10) business days from the date of such change may be
required to allow for adequate dissemination and investor response if a change
relates to the price to be paid or, subject to certain limitations, a change in
the percentage of securities sought or the inclusion of or change to a dealer's
soliciting fee.
Subject to the terms of the Merger Agreement, if, prior to the Expiration
Date, Purchaser should decide to decrease the number of Shares being sought
(which decrease would require the Company's consent) or to increase or decrease
the Per Share Amount (which decrease would require the Company's consent), such
decrease in the number of Shares being sought or such increase or decrease in
the Per Share Amount will be applicable to all shareholders of the Company whose
Shares are accepted for payment pursuant to the Offer. If at the time notice of
any such decrease in the number of Shares being sought or increase or decrease
in the Per Share Amount is first published, sent or given to holders of such
Shares, the Offer is scheduled to expire prior to the tenth business day from
and including the date that such notice is first so published, sent or given,
then the Offer will be extended at least until the expiration of such ten (10)
business day period. For purposes of the Offer, a "business day" means any day
other than a Saturday, Sunday or a U.S. federal holiday or a day on which
banking institutions in New York are authorized or required by law or other
action of a governmental authority to close and consists of the time period from
12:01 a.m. through 12:00 midnight, New York City time.
UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES BE
PAID, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH
PAYMENT. During any extension of the Offer, all Shares previously tendered and
not withdrawn will remain tendered pursuant to the Offer, subject to the rights
of a tendering shareholder to withdraw his Shares. See Section 4.
Pursuant to Rule 14d-11 under the Exchange Act, Purchaser has the right,
but is not required, to provide for a subsequent offering period of up to twenty
(20) business days following the expiration of the Offer on the Expiration Date
(a "Subsequent Offering Period"), subject to certain conditions set forth in
such Rule. A Subsequent Offering Period is an additional period of time from
three (3) business days up to twenty (20) business days, following the
expiration of the Offer and the purchase of Shares in the Offer, during which
Shareholders may tender, but not withdraw, Shares not tendered in the Offer. If
▇▇▇▇▇▇▇▇▇ decides to provide for a Subsequent Offering Period, and such
Subsequent Offering Period is for a period of time which is less than twenty
(20) business days, Purchaser may extend (and re-extend) such Subsequent
Offering Period up to an aggregate of twenty (20) business days. A Subsequent
Offering Period, if one is provided, is not an extension of the Offer.
Purchaser does not currently intend to provide for a Subsequent Offering
Period following the Expiration Date, although it reserves the right to do so in
its sole discretion by giving oral or written notice of such Subsequent Offering
Period to the Depositary. Any decision to provide a Subsequent Offering Period
will be disseminated at least five (5) business days prior to the Expiration
Date and will not extend the Expiration Date. Purchaser will announce the
approximate number and percentage of Shares deposited as of the Expiration Date
no later than 9:00 a.m., New York City time, on the next business day following
the Expiration Date, and such securities will be immediately accepted and
promptly paid for. All conditions to the Offer must be satisfied or waived prior
to the commencement of any Subsequent Offering Period.
Pursuant to Rule 14d-7 under the Exchange Act, no withdrawal rights apply
to Shares tendered during a Subsequent Offering Period or Shares tendered in the
Offer and accepted for payment. During a Subsequent Offering Period, Purchaser
will promptly purchase and pay for any Shares tendered the same consideration
(i.e., the Per Share Amount) paid in the Offer.
9
The Company has provided Purchaser with the Company's shareholder list and
security position listings for the purpose of disseminating the Offer to all
Shareholders. This Offer to Purchase, the related Letter of Transmittal (the
"Letter of Transmittal") and other relevant materials will be mailed to record
Shareholders whose names appear on the Company's shareholder list and will be
furnished, for subsequent transmittal to beneficial owners of Shares, to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on the shareholder list or, if
applicable, who are listed as participants in a clearing agency's security
position listing.
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and will pay for all Shares
validly tendered and not properly withdrawn on or prior to the Expiration Date
as soon as practicable after the Expiration Date; provided, however, that the
conditions of the Offer set forth in Section 14, including, without limitation,
the expiration or termination of any waiting periods applicable to the
acquisition of Shares pursuant to the Offer under the HSR Act, have been
satisfied or waived prior to the Expiration Date. In addition, Purchaser
reserves the right, in its sole discretion and subject to applicable law and the
Merger Agreement, to delay the acceptance for payment of or payment for Shares
in order to comply in whole or in part with any applicable law.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering Shareholders for the purpose of receiving payments from Purchaser and
transmitting those payments to Shareholders whose Shares have been accepted for
payment. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (i) the certificates evidencing such Shares (the "Share Certificates") or
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Shares, if such procedure is available, into the Depositary's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in Section 3, (ii) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed with any required
signature guarantees, or an Agent's Message (as defined in Section 3) in
connection with a book-entry transfer, and (iii) any other documents required by
the Letter of Transmittal. For a description of the procedures for tendering
Shares pursuant to the Offer, see Section 3. Accordingly, payment may be made to
tendering Shareholders at different times if delivery of the Shares and other
required documents occur at different times. Under no circumstances will
Purchaser pay interest on the consideration paid for Shares pursuant to the
Offer, regardless of any delay in making such payment.
If, prior to the Expiration Date, Purchaser increases the consideration
offered to Shareholders pursuant to the Offer, such increased consideration will
be paid to all Shareholders whose Shares are purchased pursuant to the Offer,
even if those Shares were tendered prior to the increase in consideration. If
any tendered Shares are not accepted for payment for any reason or if Share
Certificates are submitted for more Shares than are tendered, Share Certificates
evidencing unpurchased or untendered Shares will be returned (or, in the case of
Shares tendered by book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility pursuant to the procedures set forth in Section 3,
such Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), without expense to the tendering Shareholder, as promptly as
practicable following the expiration, termination or withdrawal of the Offer.
SECTION 3. PROCEDURES FOR TENDERING SHARES.
VALID TENDER. Except as set forth below, in order for Shares to be validly
tendered pursuant to the Offer, (i) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed with any required signature
guarantees, or an Agent's Message in connection with a book-entry delivery of
Shares, and any other documents required by the Letter of Transmittal, must be
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase on or prior to the Expiration Date, and either (a)
10
Share Certificates evidencing tendered Shares must be received by the Depositary
at such address or (b) such Shares must be tendered pursuant to the procedure
for book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case on or prior to the Expiration Date or
the expiration of any Subsequent Offering Period, or (ii) the tendering
Shareholder must comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message from the Book-Entry Transfer Facility
transmitted to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that (x) the Book-Entry Transfer Facility
has received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that are the subject of the Book-Entry
Confirmation, (y) the participant has received and agrees to be bound by the
terms of the Letter of Transmittal and (z) Purchaser may enforce such agreement
against the participant.
If Share Certificates are forwarded separately to the Depositary, a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) must accompany each delivery.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE ELECTION AND SOLE RISK OF THE TENDERING
SHAREHOLDER. THE SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facility for purposes of the Offer
within two (2) business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of the Book-Entry
Transfer Facility may make book-entry delivery of Shares by causing the
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's transfer procedures. However, although delivery of Shares
may be effected through book- entry transfer at the Book-Entry Transfer
Facility, a Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed with any required signature guarantees, or an Agent's Message
in connection with a book-entry transfer, and any other documents required by
the Letter of Transmittal, must in any case be received by the Depositary at one
of its addresses set forth on the back cover of this Offer to Purchase on or
prior to the Expiration Date or the expiration of any Subsequent Offering
Period, or the tendering Shareholder must comply with the guaranteed delivery
procedures described below. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
SIGNATURE GUARANTEES. No signature guarantee is required for Shares
tendered (i) by a registered holder of Shares who has not completed either the
box labeled "Special Payment Instructions" or the box labeled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution. See Instruction 5 of the Letter of Transmittal. All other
tenders of Shares must have the signatures on the Letters of Transmittal
guaranteed by a firm which is a bank, broker, dealer, credit union, savings
association or other entity which is a member in good standing of a recognized
Medallion Signature Guarantee Program or by any other "eligible guarantor
institution," as defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing, an "Eligible Institution"). See Instruction 1 of the Letter of
Transmittal.
If a Share Certificate is registered in the name of a person other than the
person who signs the Letter of Transmittal, or if payment is to be made, or a
Share Certificate not accepted for payment or not tendered is to be returned, to
a person other than the registered holder(s), the Share Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear(s) on the Share
Certificate, with the signature(s) on such Share Certificate or stock powers
guaranteed as provided above. See Instructions 1 and 5 of the Letter of
Transmittal.
GUARANTEED DELIVERY. If a Shareholder desires to tender Shares pursuant to
the Offer and such Shareholder's Share Certificates are not immediately
available, time will not permit all required documents to
11
reach the Depositary on or prior to the Expiration Date or the expiration of any
Subsequent Offering Period, or a Shareholder cannot complete the procedures for
delivery by book-entry transfer on a timely basis, then such Shareholder's
Shares may nevertheless be tendered, provided that all of the following
conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser herewith, is
received by the Depositary as provided below on or prior to the Expiration
Date or the expiration of any Subsequent Offering Period; and
(iii) the Share Certificates evidencing all tendered Shares, in proper
form for transfer, or a Book-Entry Confirmation, together with the Letter
of Transmittal (or a facsimile thereof) properly completed and duly
executed with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required
by the Letter of Transmittal, are received by the Depositary within
three (3) Nasdaq National Market trading days after the date of execution
of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mailed to the Depositary and must include
a guarantee by an Eligible Institution and a representation that the Shareholder
owns the Shares tendered within the meaning of, and that the tender of the
Shares effected thereby complies with, Rule 14e-4 under the Exchange Act, each
in the form set forth in the Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) Share Certificates evidencing such Shares or a
Book-Entry Confirmation of the delivery of such Shares (if available), (ii) a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) or, in the case of a book-entry transfer, an Agent's Message, and (iii)
any other documents required by the Letter of Transmittal. Accordingly, payment
may not be made to all tendering Shareholders at the same time and will depend
upon when Share Certificates are received by the Depositary or Book-Entry
Confirmations of tendered Shares are received in the Depositary's account at the
Book-Entry Transfer Facility.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares pursuant to any of the procedures described above will be determined
by Purchaser, in its sole discretion, which determination shall be final and
binding on all parties. Purchaser reserves the absolute right to reject any and
all tenders determined by it not to be in proper form or the acceptance for
payment of which may, in the opinion of its counsel, be unlawful. Purchaser also
reserves the absolute right to waive any defect or irregularity in any tender of
Shares of any particular Shareholder, whether or not similar defects or
irregularities are waived in the case of other Shareholders.
No tender of Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived. None of Purchaser, Parent,
any of their affiliates or assigns, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
APPOINTMENT AS PROXY. By executing a Letter of Transmittal as set forth
above, a tendering Shareholder irrevocably appoints Purchaser, its officers and
its designees, and each of them, as the Shareholder's attorneys-in-fact and
proxies, with full power of substitution, in the manner set forth in the Letter
of Transmittal, to the full extent of such Shareholder's rights with respect to
the Shares tendered by such Shareholder and accepted for payment by Purchaser
(and with respect to any and all other Shares or other securities issued or
issuable in respect of the Shares). All such powers of attorney and proxies
shall be considered irrevocable and coupled with an interest in the tendered
Shares. Such appointment will be effective if, when and only to the extent that,
Purchaser accepts such Shares for payment. Upon such acceptance for payment, all
prior powers of attorney and proxies given by the Shareholder with respect to
the Shares (and such other Shares and securities) will, without further action,
be revoked, and no subsequent powers of attorney, proxies or written consents
may be given or executed (and if given or executed will not be deemed
effective). Purchaser, its officers and its designees will, with respect to the
Shares (and such other Shares and securities) for which such appointment is
12
effective, be empowered to exercise all voting and other rights of the
Shareholder as they, in their sole discretion, may deem proper at any annual or
special meeting of the Shareholders or any adjournment or postponement thereof,
by written consent in lieu of any such meeting or otherwise. Purchaser reserves
the right to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's payment for such Shares, Purchaser must be able to
exercise full voting rights with respect to such Shares and other securities,
including voting at any meeting of Shareholders or acting by written consent
without a meeting.
BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may be
required to withhold 31% of the amount of any payments of cash made to certain
Shareholders pursuant to the Offer. In order to avoid backup withholding, each
Shareholder tendering Shares in the Offer must provide the Depositary with the
Shareholder's correct Taxpayer Identification Number ("TIN") on a Substitute
Form W-9 and certify under penalties of perjury that such TIN is correct and
that the Shareholder is not subject to backup withholding by completing the
Substitute Form W-9 included in the Letter of Transmittal. If a Shareholder does
not provide its correct TIN or fails to provide the certifications described
above, the Internal Revenue Service ("IRS") may impose a penalty on the
Shareholder and payment of cash to the Shareholder pursuant to the Offer may be
subject to backup withholding.
Certain Shareholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding.
Non-corporate foreign Shareholders should complete and sign a Form W-8,
Certificate of Foreign Status (a copy of which may be obtained from the
Depositary), in order to avoid backup withholding. See Instruction 9 of the
Letter of Transmittal.
OTHER REQUIREMENTS. The tender of Shares pursuant to any one of the
procedures described above will constitute the tendering Shareholder's
acceptance of the Offer, as well as the tendering Shareholder's representation
and warranty that (i) such Shareholder is the owner of the Shares within the
meaning of Rule 14e-4, under the Exchange Act, (ii) the tender of such Shares
complies with Rule 14e-4, (iii) such Shareholder has the full power and
authority to tender and assign the Shares tendered, as specified in the Letter
of Transmittal, and (iv) when such Shares are accepted for payment by Purchaser,
Purchaser will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges, claims and encumbrances and not subject to any
adverse claim. Purchaser's acceptance for payment of Shares tendered pursuant to
the Offer will constitute a binding agreement between the tendering Shareholder
and Purchaser upon the terms and subject to the conditions of the Offer.
SECTION 4. WITHDRAWAL RIGHTS.
Shares tendered pursuant to the Offer may be withdrawn at any time on or
prior to the Expiration Date. Thereafter, such tenders are irrevocable, except
that they may be withdrawn at any time after July 14, 2000, unless accepted for
payment. If Purchaser provides a Subsequent Offering Period, Shareholders may
not withdraw Shares tendered in such Subsequent Offering Period or Shares
tendered in the Offer and accepted for payment. If for any reason whatsoever
acceptance for payment of or payment for any Shares tendered pursuant to the
Offer is delayed or Purchaser is unable to accept for payment or pay for Shares
tendered pursuant to the Offer, then, without prejudice to Purchaser's rights
set forth herein, the Depositary may nevertheless, on behalf of Purchaser,
retain tendered Shares, and those Shares may not be withdrawn except to the
extent that the tendering Shareholder is entitled to exercise and duly exercises
withdrawal rights, as described in this Section 4, subject, however, to
Purchaser's obligation under Rule 14e-1(c) under the Exchange Act to pay for
Shares tendered or to return those Shares promptly after termination or
withdrawal of the Offer.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Depositary (in accordance with the
Offer) at one of its addresses set forth on the back cover of this Offer to
Purchase. Any notice of withdrawal must specify the name of the person who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for
13
the account of an Eligible Institution. If Shares have been tendered pursuant to
the procedure for book-entry transfer as set forth in Section 3, any notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares. Withdrawals of
Shares may not be rescinded. Any Shares properly withdrawn will thereafter be
deemed not to have been validly tendered for purposes of the Offer. However,
withdrawn Shares may be re-tendered at any time on or prior to the Expiration
Date or the expiration of any Subsequent Offering Period, by following one of
the procedures described in Section 3.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. None of Purchaser,
Parent, any of their affiliates or assigns, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
SECTION 5. CERTAIN TAX CONSIDERATIONS.
The summary of federal income tax consequences set forth below is for
general information only and is based on the law as currently in effect. The tax
consequences to each Shareholder will depend in part upon such Shareholder's
particular situation. The following discussion may not apply to Shareholders who
acquired their Shares pursuant to the exercise of employee stock options or
other compensation arrangements with the Company or who are subject to special
tax treatment under the Internal Revenue Code of 1986, as amended (the "Code"),
such as non-U.S. persons, life insurance companies, tax-exempt organizations and
financial institutions.
SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR
OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS.
Sales of Shares by Shareholders pursuant to the Offer will be taxable
transactions for federal income tax purposes under the Code and may also be
taxable transactions under applicable state, local and other tax laws. In
general, for federal income tax purposes, a Shareholder will recognize gain or
loss equal to the difference between the tax basis of such Shareholder's Shares
and the amount of cash received in exchange therefor. In general, such gain or
loss will be capital gain or loss if the Shares are capital assets in the hands
of the Shareholder and will be long-term gain or loss if the holding period for
the Shares is more than one year as of the date of the sale of such Shares.
A Shareholder who tenders Shares may be subject to backup withholding
unless the Shareholder provides his TIN and certifies that such number is
correct or an exemption applies. A Shareholder who does not furnish his TIN may
be subject to a penalty imposed by the IRS. See Section 3.
14
SECTION 6. PRICE RANGE OF SHARES; DIVIDENDS.
The Common Stock is traded on The Nasdaq National Market under the symbol
FNCO. The following table sets forth, for the periods indicated, the high and
low sale prices per Share as reported by The Nasdaq National Market.
LOW HIGH
---- ----
Fiscal Year Ending April 1, 2001
First Quarter (through May 15, 2000)...................................... $16 3/4 $ 24 15/16
Fiscal Year Ended April 2, 2000
First Quarter............................................................. $16 5/16 $ 24 5/8
Second Quarter............................................................ 14 1/2 20
Third Quarter............................................................. 10 1/8 20 3/4
Fourth Quarter............................................................ 9 5/8 15 1/8
Fiscal Year Ended March 28, 1999
First Quarter............................................................. $11 5/8 $ 19 3/4
Second Quarter............................................................ 11 5/16 18 3/8
Third Quarter............................................................. 9 5/8 18 7/8
Fourth Quarter............................................................ 12 19 1/2
On April 5, 2000, the last full trading day before the Company announced
receipt of Parent's first merger proposal, the closing price per Share on The
Nasdaq National Market was $16 13/16. On May 4, 2000, the last full day of
trading prior to the public announcement of the execution of the Merger
Agreement, the reported closing price per Share on The Nasdaq National Market
was $24 5/16. On May 15, 2000, the last full day of trading prior to
commencement of the Offer, the reported closing price per Share on The Nasdaq
National Market was $24 7/16.
The Company did not declare or pay any cash dividends with respect to the
Shares during any of the periods indicated in the table.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY.
GENERAL. The Company is a Minnesota corporation with its headquarters
located at ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇. According to
the Company's Annual Report on Form 10-K for the fiscal year ended March 28,
1999 (the "Company 10-K"), the Company engages in the sale of new and used video
games and related products.
FINANCIAL INFORMATION. The following selected consolidated financial data
relating to the Company and its subsidiary have been taken or derived from (a)
the Company's earnings release on May 16, 2000 for the fiscal year ended April
2, 2000 and (b) the audited financial statements contained in the Company 10-K
for the fiscal years ended March 28, 1999, March 29, 1998 and March 30, 1997.
More comprehensive financial information is included in the Company 10-K and the
other documents filed by the Company with the SEC, and the financial data set
forth below are qualified in their entirety by reference to such reports and
other documents including the financial statements (and the notes thereto)
contained therein. The Company 10-K and such other documents may be examined and
copies may be obtained from the offices of the SEC in the manner set forth
below.
15
FUNCO, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARES, PER SHARE AMOUNTS AND NUMBER OF STORES)
YEAR ENDED
----------------------------------------------------
APRIL 2, MARCH 28, MARCH 29, MARCH 30,
2000 1999 1998 1997
---------- ---------- ---------- ----------
STATEMENTS OF OPERATIONS DATA
Net sales................................................ $ 252,653 $ 206,673 $ 163,316 $ 120,555
Net income............................................... $ 6,725 $ 9,710 $ 8,270 $ 5,350
Net income per share, basic.............................. $ 1.13 $ 1.60 $ 1.35 $ 0.90
Weighted average number of shares, basic................. 5,970,987 6,077,986 6,137,161 5,941,744
Net income per share, diluted............................ $ 1.08 $ 1.53 $ 1.26 $ 0.86
Weighted average number of shares, diluted............... 6,246,558 6,353,311 6,572,365 6,228,630
Stores open at end of period............................. 400 312 250 188
BALANCE SHEET DATA
Total assets............................................. $ 67,999 $ 55,140 $ 45,626 $ 31,745
Long-term obligations.................................... $ 324 $ 213 $ 156 $ 91
Shareholders' equity..................................... $ 46,751 $ 38,836 $ 33,525 $ 24,318
Except as otherwise set forth in this Offer to Purchase, the information
concerning the Company contained herein has been furnished by the Company or has
been taken from or is based upon reports and other documents on file with the
SEC or otherwise publicly available. Although neither Purchaser nor Parent has
any knowledge that would indicate that any statements contained herein based
upon such reports and documents are untrue, neither Purchaser nor Parent takes
any responsibility for the accuracy, validity or completeness of the information
contained in such reports and other documents or for any failure by the Company
to disclose events that may have occurred and may affect the significance or
accuracy of any such information but that are unknown to Purchaser or Parent.
CERTAIN COMPANY PROJECTIONS. During the course of discussions among
Parent, Purchaser and the Company that led to the execution of the Merger
Agreement (see Section 11 below), the Company provided Parent and Purchaser with
certain business and financial information that was not publicly available. Such
information included the following projections of net sales, net income and net
income per share for the Company for fiscal years 2001 and 2002.
2001 2002
-------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net sales.............................................. $308,020 $397,600(1)
Net income............................................. 8,550 17,080(1)
Net income per share (diluted)......................... 1.40 2.75(1)
------------------
(1) Subsequent to the initial receipt by Parent and Purchaser of projections for
fiscal year 2002, revised projections for fiscal year 2002 were made
available to Parent and Purchaser which indicated net sales, net income and
net income per share (diluted) of $404,600, $16,820 and $2.71, respectively.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR
COMPLIANCE WITH PUBLISHED GUIDELINES OF THE SEC OR THE GUIDELINES ESTABLISHED BY
THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND
ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION WAS
PROVIDED TO PARENT AND PURCHASER. THE PROJECTIONS WERE NOT UPDATED AS OF THE
DATE OF THIS OFFER TO PURCHASE. NONE OF PARENT, PURCHASER NOR ANY OF THEIR
REPRESENTATIVES ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE PROJECTIONS.
WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED UPON A
VARIETY OF ASSUMPTIONS (NOT ALL OF WHICH WERE STATED THEREIN AND NOT ALL OF
WHICH WERE PROVIDED TO PARENT OR PURCHASER) RELATING TO THE BUSINESS OF THE
COMPANY, WHICH MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT FINANCIAL,
MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES WHICH ARE
DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY, MANY OF WHICH ARE BEYOND THE
CONTROL OF THE COMPANY AND PARENT. THERE CAN BE NO ASSURANCE THAT THE RESULTS IN
THE PROJECTIONS WILL BE REALIZED, AND ACTUAL RESULTS MAY VARY MATERIALLY FROM
THOSE SHOWN. THE INCLUSION OF THE PROJECTIONS SHOULD NOT BE REGARDED AS A
16
REPRESENTATION BY PARENT, PURCHASER OR ANY OF THEIR RESPECTIVE AFFILIATES OR
REPRESENTATIVES OR BY THE COMPANY OR ANY OF ITS AFFILIATES OR REPRESENTATIVES
THAT THE PROJECTED RESULTS WILL BE ACHIEVED. THE PROJECTIONS SHOULD BE READ
TOGETHER WITH THE FINANCIAL STATEMENTS OF THE COMPANY REFERRED TO HEREIN.
AVAILABLE INFORMATION. The Shares are registered under the Exchange Act.
Accordingly, the Company is subject to the information and reporting
requirements of the Exchange Act and in accordance therewith is obligated to
file periodic reports, proxy statements and other information with the SEC
relating to its business, financial condition and other matters. Information as
of particular dates concerning the Company's directors and officers, their
compensation, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company is required to be disclosed in such proxy statements and
distributed to the Company's shareholders and filed with the SEC. These reports,
proxy statements and other information are available for inspection at the
public reference facilities of the SEC located in Judiciary Plaza, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, and for inspection and copying at
prescribed rates at the regional offices of the SEC located at Citicorp Center,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and Seven World
Trade Center, Suite ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇. The Company's SEC filings
are also available to the public on the SEC's Internet site
(▇▇▇▇://▇▇▇.▇▇▇.▇▇▇). Copies of this material may also be obtained by mail, upon
payment of the SEC's customary fees, from the SEC's principal office at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇. In addition, such material is
available for inspection at the offices of the National Association of
Securities Dealers, Inc. located at ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇.
SECTION 8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT.
Purchaser, a newly incorporated Minnesota corporation and a wholly-owned
indirect subsidiary of Parent, was organized to acquire the Company and has not
carried on any activities to date other than in connection with the Offer and
the Merger Agreement. The principal executive office of Purchaser is located c/o
Barnes & ▇▇▇▇▇, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and the
telephone number at such office is (▇▇▇) ▇▇▇-▇▇▇▇.
Parent, the nation's largest bookseller,* as of January 29, 2000, operated
942 bookstores and 526 video game and entertainment software stores. Of the 942
bookstores, 542 operate under the ▇▇▇▇▇▇ & ▇▇▇▇▇ Booksellers, Bookstop and
Bookstar trade names, and 400 operate under the ▇. ▇▇▇▇▇▇ Bookseller, Doubleday
Book Shops and ▇▇▇▇▇▇▇▇'▇ Bookstore trade names. Through its 40% membership
interest in ▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ llc, Parent is the second largest seller of books
on the Internet and is the exclusive bookseller on America Online. Parent,
through its recent acquisition of Babbage's Etc. LLC ("Babbage's"), operates 526
video game and entertainment software stores under the Babbage's, Software Etc.
and GameStop trade names, and a Web site, ▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇.
The principal executive office of Parent is located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and the telephone number at such office is
(▇▇▇) ▇▇▇-▇▇▇▇. The name, present principal occupation or employment, five-year
employment history and citizenship of each of the directors and executive
officers of Purchaser and Parent as well as the name, principal business and
address of the corporation or other organization in which such present
occupation or employment is carried on are set forth in Schedule I hereto.
Parent is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file certain periodic
reports, proxy statements and other information with the SEC relating to its
business, financial condition and other matters. Information as of particular
dates concerning Parent's directors and officers, their compensation, stock
options granted to them, the principal holders of Parent's securities and any
material interest of such persons in transactions with Parent is required to be
disclosed in such proxy statements and distributed to ▇▇▇▇▇▇'s shareholders and
filed with the SEC. These reports, proxy statements and other information are
available for inspection at the public reference facilities of the SEC located
in Judiciary Plaza, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, and for
inspection and copying at prescribed rates at the regional offices of the SEC
located at Citicorp Center, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and Seven World Trade Center, Suite ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇. Parent's SEC filings are also available to the public on the SEC's
Internet site (▇▇▇▇://▇▇▇.▇▇▇.▇▇▇). Copies of this material may also be obtained
by mail, upon payment of the SEC's customary fees, from the SEC's principal
office at ▇▇▇ ▇▇▇▇▇
------------------
* Based upon information reported in trade publications and public filings.
17
Street, N.W., Washington, D.C. 20549. In addition, such material is available
for inspection at the offices of the New York Stock Exchange located at ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
Because the only consideration in the Offer and Merger is cash and the
Offer covers all outstanding Shares, and in view of the absence of a financing
condition, Purchaser believes the financial condition of Parent, Purchaser and
their affiliates is not material to a decision by a Shareholder whether to sell,
tender or hold Shares pursuant to the Offer. However, consolidated financial
statements (including notes thereto) of Parent are contained in Parent's Annual
Report on Form 10-K for the fiscal year ended January 29, 2000 (the "Parent
10-K"). Such reports and other documents may be examined and copies may be
obtained from the offices of the SEC in the manner set forth above.
Except as provided in Section 11 of this Offer to Purchase, none of
Purchaser, Parent or, to the best of their knowledge, any of the persons listed
on Schedule I or any associate or wholly-owned or majority- owned subsidiary of
Purchaser, Parent or any of the persons so listed beneficially owns or has a
right to acquire, directly or indirectly, any Shares or any other equity
securities of the Company. None of Purchaser, Parent or, to the best of their
knowledge, any of the persons or entities referred to above, or any of the
respective executive officers, directors or subsidiaries of any of the
foregoing, has effected any transactions in the Shares during the past sixty
days.
Except as described in Section 11 of this Offer to Purchase, none of
Purchaser, Parent or, to the best of their knowledge, any of the persons listed
on Schedule I has any contract, arrangement, understanding or relationship with
any other person with respect to any securities of the Company, including but
not limited to contracts, arrangements, understandings or relationships
concerning the transfer or voting of such securities, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies, except as contemplated by the Merger
Agreement.
Except as set forth in this Offer to Purchase, none of Purchaser, Parent
or, to the best of their knowledge, any of the persons listed on Schedule I has
had any business relationships or transactions with the Company or any of its
executive officers, directors or affiliates that are required to be reported
under the rules and regulations of the SEC applicable to the Offer. Except as
set forth in this Offer to Purchase, there have been no contacts, negotiations
or transactions between any of Parent, Purchaser or, to the best knowledge of
Purchaser and Parent, any of the persons listed on Schedule I, on the one hand,
and the Company or its affiliates, on the other hand, concerning a merger,
consolidation or acquisition, a tender offer or other acquisition of securities,
an election of directors or a sale or other transfer of a material amount of
assets.
SECTION 9. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by Purchaser and Parent to consummate
the Offer and the Merger and to pay related fees and expenses is estimated to be
approximately $166.3 million.
The Offer is not conditioned upon any financing arrangements. Purchaser
will obtain all necessary funds required to consummate the transaction through
capital contributions or advances made by Parent. Parent plans to make these
contributions or advances from funds on hand or borrowings under its existing
bank credit facility (the "Credit Facility").
A summary of the Credit Facility is incorporated by reference to the Parent
10-K, and a copy of the credit agreement providing for the Credit Facility has
been filed with the SEC as an exhibit to Parent's Tender Offer Statement on
Schedule TO, dated May 16, 2000 (the "Schedule TO"). This credit agreement may
be examined at, and copies thereof may be obtained from, the offices of the SEC
in the same manner as set forth in Section 8 above.
18
SECTION 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.
In August 1998, representatives of ▇▇▇▇▇▇▇'▇, then owned by an affiliate of
Parent, contacted ▇▇▇▇▇ about the possibility of a potential financing for
▇▇▇▇▇▇▇'▇, which financing ▇▇▇▇▇▇▇'▇ later chose not to pursue. At the
suggestion of ▇▇▇▇▇, however, representatives of ▇▇▇▇▇▇▇'▇ and the Company had
informal discussions concerning a potential business combination. These
discussions did not result in any proposals or offers being made.
At the Company's direction, ▇▇▇▇▇ contacted ▇▇▇▇▇▇▇'▇ in April 1999 to
ascertain its level of interest in pursuing a transaction with the Company.
▇▇▇▇▇▇▇'▇ expressed an interest in exploring a transaction with the Company. On
April 21, 1999, the Company and ▇▇▇▇▇▇▇'▇ entered into a confidentiality
agreement and ▇▇▇▇▇▇▇'▇ was provided with a copy of a descriptive memorandum and
a letter setting forth bidding requirements and a deadline for the submission of
written preliminary indications of interest in the Company. ▇▇▇▇▇▇▇'▇ did not
make any offer to acquire the Company at that time.
On or about February 17, 2000, ▇▇▇▇▇ contacted ▇▇▇▇▇▇▇'▇, which was now a
subsidiary of Parent, concerning its interest in acquiring the Company. On
February 21, 2000, ▇▇▇▇▇ offered ▇▇▇▇▇▇▇'▇ additional information regarding the
Company, including updated financial projections, and invited ▇▇▇▇▇▇▇'▇ to
submit a non-binding indication of interest to acquire the Company by February
25, 2000. ▇▇▇▇▇▇▇'▇ submitted a written indication of interest to ▇▇▇▇▇ on
February 25, 2000. The Babbage's indication of interest contemplated an
acquisition of the Company pursuant to an all-cash transaction in the range of
$80 to $90 million (or approximately $13.00-$14.50 per Share on a fully diluted
basis).
On April 3, 2000, the Company publicly announced that it had entered into
an Agreement and Plan of Merger, dated as of March 31, 2000 (the "EB Merger
Agreement"), among the Company, Electronics Boutique Holdings Corp. ("EB") and
EB Acquisition Corporation. Under the EB Merger Agreement, EB agreed to pay
$17.50 per Share in cash to acquire the Company. Later that day, ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, Chief Executive Officer of ▇▇▇▇▇▇▇'▇, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
and Chief Operating Officer of Babbage's, separately contacted ▇▇. ▇▇▇▇▇▇
concerning ▇▇▇▇▇▇▇'▇ interest in acquiring the Company. ▇▇. ▇▇▇▇▇▇▇▇ then
contacted ▇▇▇▇▇ and informed ▇▇▇▇▇ that ▇▇▇▇▇▇▇'▇ was interested in making a
competing proposal to acquire the Company.
On April 5, 2000, ▇▇▇▇▇▇▇'▇ sent a letter to the Company Board by facsimile
stating that ▇▇▇▇▇▇▇'▇ was prepared to offer the sum of $135 million for the
Company (which was approximately $21.00 per Share on a fully diluted basis),
subject to the necessary regulatory approvals and only to the negotiation of an
acceptable agreement between the parties, and to pay the purchase price entirely
in cash or, at the Company's option, any combination of cash and stock in
Parent.
On April 6, 2000, the Company publicly announced the ▇▇▇▇▇▇▇'▇ proposal.
Following a Company Board meeting, a request was made by the Company's
representatives for Parent and Purchaser to sign a supplemental confidentiality
agreement as required under the terms of Section 6.3 of the EB Merger Agreement.
On April 7, 2000, ▇▇▇▇▇▇▇'▇ and Parent signed the supplemental confidentiality
agreement. On the same day, the Company Board again met and, following such
meeting, the Company Board's advisors informed ▇▇▇▇▇▇▇'▇ of the Company's
preference for an all-cash transaction and Faegre & ▇▇▇▇▇▇ LLP ("Faegre &
▇▇▇▇▇▇"), legal counsel to the Company, commenced discussions with ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP ("▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇"), legal counsel to
▇▇▇▇▇▇▇'▇ and Parent, concerning a possible transaction.
On April 10, 2000, representatives of Parent and ▇▇▇▇▇▇▇'▇ began meeting
with the Company's management and began their review of the Company's due
diligence materials in Minneapolis, Minnesota.
On April 11, 2000, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ delivered a draft merger agreement to
Faegre & ▇▇▇▇▇▇ providing for the acquisition of the Company by Parent or a
wholly-owned indirect subsidiary of Parent in accordance with the terms of
▇▇▇▇▇▇▇'▇ ▇▇▇▇▇ 5 letter. On April 12, 2000, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ negotiated the draft merger agreement and a binding agreement by
Parent to enter into a merger agreement at such time as the Company was
permitted to do so under the terms of the EB Merger Agreement.
On April 12, 2000, the Board of Directors of Parent held a meeting at which
the Board, among other things, authorized and approved ▇▇▇▇▇▇'s execution of a
letter addressed to the Company in which Parent unconditionally committed to
enter into an agreement and plan of merger with the Company and a shareholder
agreement with ▇▇. ▇▇▇▇▇▇. The terms of the merger agreement set forth a per
Share purchase price of $21.00, rather than $17.50 as provided under the EB
Merger Agreement, and was substantially identical to the EB Merger Agreement,
19
except for changes to the named parties. Parent executed the letter, dated
April 12, 2000, and provided it to the Company with the forms of the agreement
and plan of merger and shareholder agreement that Parent committed to sign. The
commitment letter provided that unless the Company and ▇▇. ▇▇▇▇▇▇ entered into
such agreement and plan of merger and shareholder agreement, respectively, with
Parent, by April 21, 2000, Parent would have no further obligations to the
Company.
The Company issued a press release on April 13, 2000, announcing the
Company's receipt of the commitment letter from Parent and the Company's notice
to EB, dated April 12, 2000, of its intent to enter into a definitive agreement
with Parent.
On April 19, 2000, representatives of the Company advised representatives
of Parent that EB had sent a letter to the Company in which EB and EB
Acquisition Corporation proposed an adjustment to the EB Merger Agreement to the
effect that the per Share price would be increased to $21.00 per Share, the same
per Share price that Parent had proposed. On April 20, 2000, the Company issued
a press release announcing the Company's receipt of the April 19 letter from EB.
On April 20, 2000, EB, EB Acquisition Corporation and the Company signed an
amendment to the EB Merger Agreement which increased the per Share price to be
paid by EB from $17.50 to $21.00. On April 21, 2000, the Company publicly
announced the amendment to the EB Merger Agreement.
On April 25, 2000, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ informed ▇▇▇▇▇▇ & ▇▇▇▇▇▇ that Parent
proposed to acquire the Company for approximately $160 million. Later that day,
▇▇▇▇▇▇ sent a letter to the Company Board stating that Parent proposed to
acquire the Company for $24.75 per Share in cash (which was approximately
$161.5 million in the aggregate) and that ▇▇▇▇▇▇'s proposal would be submitted
to the Company by April 26, 2000 as a binding offer accompanied by a proposed
agreement and plan of merger. ▇▇▇▇▇▇ & ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ then
negotiated concerning a draft of the merger agreement and a binding agreement by
Parent to enter into the merger agreement at such time as the Company was
permitted to do so under the terms of the EB Merger Agreement, as amended.
On April 26, 2000, the Company publicly announced ▇▇▇▇▇▇'s $24.75 per Share
proposal, and ▇▇▇▇▇▇ executed a commitment letter addressed to the Company,
dated April 26, 2000, containing such binding agreement by Parent.
The Company issued a press release on April 27, 2000, announcing the
Company's receipt of the commitment letter from Parent and the Company's notice
to EB, dated April 26, 2000, of its intent to enter into a definitive agreement
with Parent.
On May 2, 2000, the Company received written notice from EB informing the
Company that neither EB nor EB Acquisition Corporation intended to propose any
price or other adjustments to the EB Merger Agreement, as amended, as permitted
pursuant to Section 8.1(d)(ii) thereof. EB issued a press release on May 2, 2000
announcing that it did not intend to make adjustments to the EB Merger
Agreement, as amended, in response to Parent's $24.75 per Share acquisition
proposal.
On May 3 and May 4, 2000, ▇▇▇▇▇▇ & ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ finalized
a proposed merger agreement. On May 4, 2000, the Company, Parent and Purchaser
also signed the Merger Agreement and ▇▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ signed the
Shareholder Agreement.
On May 4, 2000, the Company and Parent publicly announced the signing of
the Merger Agreement and the Shareholder Agreement.
20
SECTION 11. PURPOSE OF THE OFFER AND MERGER; PLANS FOR THE COMPANY; MERGER
AGREEMENT; SHAREHOLDER AGREEMENT AND OTHER AGREEMENTS; OTHER MATTERS.
PURPOSE OF THE OFFER AND MERGER. The purpose of the Offer and the Merger
is to enable Purchaser to acquire control of, and the entire equity interest in,
the Company. The Offer is intended to increase the likelihood that the Merger
will be effected promptly. The purpose of the Merger is to acquire all
outstanding Shares not acquired pursuant to the Offer or otherwise.
Parent intends, as soon as possible after consummation of the Offer and in
accordance with the Merger Agreement, to obtain representation on the Company
Board proportionate to its Share ownership at such time.
PLANS FOR THE COMPANY. Upon acquiring control of the Company, Parent
intends to continue its review and evaluation of the Company and its subsidiary
and their respective assets, businesses, corporate structure, capitalization,
operations, properties, policies, management and personnel, with a view towards
determining how to optimally realize any potential benefits which arise from the
relationship of the operations of the Company with those of other business units
of Parent, including ▇▇▇▇▇▇▇'▇. Such evaluation and review is ongoing and is not
expected to be completed until after the consummation of the Offer and the
Merger. If, as and to the extent that Parent acquires control of the Company,
Parent will complete such evaluation and review of the Company and will
determine what, if any, changes would be desirable in light of the circumstances
which then exist. Such changes could include, among other things, restructuring
the Company through changes in the Company's business, corporate structure,
headquarters, articles of incorporation, bylaws, capitalization or management or
could involve consolidating, reorganizing and streamlining certain operations.
After Parent concludes its review of the Company, it is possible that Parent
might modify some of its current plans. Except as described above or elsewhere
in this Offer to Purchase, Parent has no present plans or proposals that would
relate to or result in an extraordinary corporate transaction involving the
Company or its subsidiary (such as a merger, reorganization, liquidation, or
sale or other transfer of a material amount of assets), any material change in
the Company's capitalization or dividend policy, or any other material change in
the Company's corporate structure or business.
MERGER AGREEMENT. The following is a summary of certain provisions of the
Merger Agreement. The summary is qualified in its entirety by reference to the
Merger Agreement, which is incorporated herein by reference and a copy of which
has been filed with the SEC as an exhibit to Parent's Schedule TO. The following
summary may not contain all of the information important to a Shareholder. The
Merger Agreement should be read in its entirety for a more complete description
of the matters summarized below. The Merger Agreement may be examined and copies
may be obtained at the place and in the manner set forth in Section 8 of this
Offer to Purchase. Capitalized terms used in the following summary and not
otherwise defined in this Offer to Purchase have the meanings set forth in the
Merger Agreement.
The Offer. The obligation of Parent to cause Purchaser to commence the
Offer, to consummate the Offer and to accept tender of and to pay for Shares
validly tendered in the Offer and not withdrawn in accordance therewith will be
subject to, and only to, those conditions set forth in Annex A to the Merger
Agreement and described in this Section 11 and Section 14 of this Offer to
Purchase (the "Offer Conditions"). Subject to the foregoing, the Merger
Agreement states that as promptly as practicable (but in any event not later
than 10 business days after the public announcement of Purchaser's intention to
commence the Offer), Parent will cause Purchaser to commence (within the meaning
of Rule 14d-2 under the Exchange Act) the Offer whereby Purchaser will offer to
purchase for cash all of the Shares at the Per Share Amount, net to the seller
in cash (subject to reduction for any stock transfer taxes payable by the seller
if payment is to be made to an individual or entity other than the individual,
corporation, limited liability company, limited liability partnership,
partnership, association, trust, unincorporated organization or other entity or
group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act) (each, a
"Person") in whose name the certificate for such Shares is registered or any
applicable federal back-up withholding).
The Merger Agreement provides that, without the prior written consent of
the Company, Purchaser will not, and Parent will cause Purchaser not to, (i)
decrease or change the form of the Per Share Amount, (ii) decrease the number of
Shares sought in the Offer, (iii) amend or waive the condition that there be
validly tendered and not withdrawn before the Expiration Date a number of Shares
which, together with all Shares already owned, directly
21
or indirectly, by Parent or Purchaser, represents at least 51% of the total
voting power of the outstanding securities of the Company entitled to vote in
the election of directors or in a merger, calculated on a fully diluted basis,
on the date of purchase, or impose conditions other than the Offer Conditions on
the Offer, (iv) extend the date that the Offer, as it may be extended pursuant
to the Merger Agreement, expires (which will initially be 20 business days
following the commencement of the Offer) except (A) as required by law, and (B)
that, in the event that the Offer Conditions are not satisfied or waived at the
time that the Expiration Date would otherwise occur, (1) Purchaser must extend
the Expiration Date for an aggregate of 10 additional business days to the
extent necessary to permit such conditions to be satisfied and (2) Purchaser
may, in its sole discretion, extend the Expiration Date for such additional
periods as it may determine to be appropriate (but not beyond August 4, 2000) to
permit the Offer Conditions to be satisfied, or (v) amend any term of the Offer
in any manner adverse to the Shareholders (including, without limitation, to
result in any extension which would be inconsistent with the preceding
provisions of this sentence); provided, however, that (1) subject to applicable
legal requirements, Parent may cause Purchaser to waive any Offer Condition,
other than the Minimum Condition, in Parent's sole discretion and (2) the Offer
may be extended (but not beyond August 4, 2000) in connection with an increase
in the consideration to be paid pursuant to the Offer so as to comply with
applicable rules and regulations of the SEC.
In addition to Purchaser's rights to extend and amend the Offer subject to
the provisions of the Merger Agreement, Purchaser (i) will not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, pay for, and (subject to any such rules and regulations) may delay the
acceptance for payment of, or payment for, any tendered Shares, and (ii) may
terminate the Offer or amend the Offer as to any Shares not then paid for if any
of the events described in this Section 11 and Section 14 of this Offer to
Purchase exists (to the extent permitted by the Merger Agreement).
The Company Action. The Merger Agreement states that the Company Board and
the Special Committee (each at a meeting duly called and held) (i) determined
that the Merger Agreement, the Offer and the Merger are fair to and in the best
interests of the Company and the Shareholders, (ii) approved the Merger
Agreement and the transactions contemplated by the Merger Agreement, including
the Offer and the Merger, and (iii) resolved to recommend acceptance of the
Offer and approval of the Merger Agreement by the Shareholders.
The Company's Board of Directors. Pursuant to the Merger Agreement,
promptly upon the purchase of the Shares by Purchaser pursuant to the Offer
(provided that the Minimum Condition has been satisfied), and from time to time
thereafter, (i) Parent will be entitled, subject to compliance with Section
14(f) of the Exchange Act, to designate such number of directors ("Parent's
Designees"), rounded up to the next whole number, on the Company Board as will
give Parent representation on the Company Board (and on each committee of the
Company Board) equal to the product of (A) the total number of directors on the
Company Board (and on each committee of the Company Board) (giving effect to any
increase in the number of directors pursuant to the Merger Agreement) multiplied
by (B) the percentage that such number of Shares so purchased bears to the
aggregate number of Shares outstanding at the time of Parent's designation (such
product being the "Board Percentage"), and (ii) the Company will, upon request
by Parent, promptly satisfy the Board Percentage by (A) increasing the size of
the Company Board (and each committee of the Company Board) or (B) using its
reasonable best efforts to secure the resignations of such number of directors
as is necessary to enable Parent's Designees to be elected to the Company Board
(and each committee of the Company Board), or both, and will use its best
efforts to cause Parent's Designees promptly to be so elected, subject in all
instances to compliance with Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. Notwithstanding the foregoing, Parent and Purchaser have
agreed to use their best efforts to assure that at all times prior to the time
of the filing of the articles of merger with respect to the Merger with the
Secretary of State of the State of Minnesota in accordance with the MBCA, the
Company Board will include two directors who were members of the Company Board
on the date of the Merger Agreement and who are not employees of the Company.
The Merger. At the Effective Time, and in accordance with, and subject to,
the terms and conditions of the Merger Agreement and the terms of the MBCA,
Purchaser will be merged with and into the Company, the separate corporate
existence of Purchaser will thereupon cease, and the Company shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation"). At the Effective Time, the Merger will have the other
effects provided in the applicable provisions of the MBCA. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time, all the
property, rights,
22
privileges, powers, immunities and franchises of the Company and Purchaser will
vest in the Surviving Corporation, and all debts, liabilities, obligations and
duties of the Company and Purchaser will become the debts, liabilities,
obligations and duties of the Surviving Corporation.
Conversion of Shares. At the Effective Time, each Share that is issued and
outstanding immediately prior to the Effective Time (other than (i) Dissenting
Shares (as defined below), and (ii) Shares held of record by Parent or Purchaser
or any other direct or indirect wholly-owned subsidiary of Parent immediately
prior to the Effective Time) will, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and represent the
right to receive the Per Share Amount in cash (the "Merger Consideration"),
without interest, prorated for fractional shares, if any. Any payment made
pursuant to the Merger Agreement will be made net of applicable withholding
taxes to the extent such withholding is required by law. At the Effective Time,
each share of the common stock, par value $.0001 per share, of Purchaser
("Purchaser Common Stock"), that is issued and outstanding immediately prior to
the Effective Time will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into and exchanged for one fully paid
and nonassessable share of common stock of the Surviving Corporation ("Surviving
Corporation Common Stock"), which will constitute the only issued and
outstanding shares of capital stock of the Surviving Corporation immediately
after the Effective Time. From and after the Effective Time, each outstanding
certificate theretofore representing shares of Purchaser Common Stock will be
deemed for all purposes to evidence ownership and to represent the same number
of shares of Surviving Corporation Common Stock.
At the Effective Time, each Share held of record by Parent or Purchaser or
any other direct or indirect wholly-owned subsidiary of Parent or the Company
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled and cease to
exist, and no payment shall be made with respect thereto.
Stock Options. Pursuant to the Merger Agreement, after the purchase of
Shares by Purchaser pursuant to the Offer (provided the Minimum Condition has
been satisfied) (the "Offer Completion") and prior to the Effective Time, the
Company will take all such actions as it is permitted or required to take under
the terms of its stock option plans to cancel all outstanding options
(collectively, the "Stock Options" and individually, a "Stock Option") to
purchase shares of Common Stock theretofore granted under any such employee or
non-employee director stock option plan of the Company and to pay, promptly, and
in any event within five days, after the Offer Completion, in cancellation of
each such Stock Option (whether or not such Stock Option is then exercisable) a
cash amount equal to the amount, if any, by which the Merger Consideration
exceeds the per share exercise price of such Stock Option, multiplied by the
number of shares of Common Stock then subject to such Stock Option (the "Stock
Option Settlement Amount"), but subject to all required tax withholdings by the
Company. Each holder of a then outstanding Stock Option that the Company does
not have a right to cancel pursuant to the terms of the applicable stock option
plan, upon execution of a cancellation agreement (a "Stock Option Cancellation
Agreement") with the Company, which the Company shall use reasonable efforts to
obtain from each such holder prior to or promptly after the Offer Completion,
shall have the right to receive in cancellation of such Stock Option (whether or
not such Stock Option is then exercisable) a cash payment from the Company
promptly and in any event within five days after the later of the Offer
Completion or the execution of a Stock Option Cancellation Agreement in an
amount equal to the Stock Option Settlement Amount, without interest, but
subject to all required tax withholdings by the Company. Each Stock Option that
is subject to a Stock Option Cancellation Agreement shall be canceled upon
payment of the Stock Option Settlement Amount for such Stock Option. The Merger
Agreement states that the Company Board or the committee appointed pursuant to
Section 2 of the Funco, Inc. 1993 Stock Option Plan Amended and Restated Through
July 31, 1998, has determined that a Potential Change in Control (as defined in
such Stock Option Plan) has occurred for purposes of determining the Change in
Control Price (as defined in such Stock Option Plan).
Surviving Corporation. Pursuant to the Merger Agreement, the Articles of
Incorporation of the Company in effect immediately prior to the Effective Time
will be the Articles of Incorporation of the Surviving Corporation, until
amended in accordance with the laws of the State of Minnesota and such Articles
of Incorporation. In addition, the Bylaws of Purchaser in effect immediately
prior to the Effective Time will be deemed, by virtue of the Merger and the
Merger Agreement and without further action by the shareholders or directors of
the Surviving Corporation or Purchaser, to be the Bylaws of the Surviving
Corporation, until further
23
amended in accordance with the laws of the State of Minnesota, the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
Pursuant to the Merger Agreement, the directors of Purchaser immediately
prior to the Effective Time will be the directors of the Surviving Corporation,
each of such directors to hold office, subject to the applicable provisions of
the Articles of Incorporation and Bylaws of the Surviving Corporation, until the
expiration of the term for which such director was elected and until his or her
successor is elected and has qualified or as otherwise provided in the Articles
of Incorporation or Bylaws of the Surviving Corporation. In addition, the
officers of Purchaser immediately prior to the Effective Time will be the
officers of the Surviving Corporation until their respective successors are
chosen and have qualified or as otherwise provided in the Bylaws of the
Surviving Corporation.
Dissenters' Rights. The Merger Agreement states that Shares issued and
outstanding immediately prior to the Effective Time, if any, which are held of
record or beneficially owned by a Person who has properly exercised, preserved
and perfected dissenters' rights with respect to such Shares pursuant to
Sections 302A.471 and 302A.473 of the MBCA and has not withdrawn or lost such
rights ("Dissenting Share(s)") will not be converted into or represent the right
to receive the Merger Consideration for such Dissenting Shares, but instead will
be treated in accordance with Sections 302A.471 and 302A.473 of the MBCA unless
and until the Person effectively withdraws or loses the Person's right to
payment under Section 302A.473 of the MBCA (through failure to preserve or
protect the right or otherwise). If, after the Effective Time, any such Person
effectively withdraws or loses such right (through failure to preserve or
protect such right or otherwise), then each such Dissenting Share held of record
or beneficially owned by such Person will thereupon be treated as if it had been
converted into, at the Effective Time, the right to receive the Merger
Consideration, without interest. Each Person holding of record or beneficially
owning Dissenting Shares who becomes entitled, pursuant to Sections 302A.471 and
302A.473 of the MBCA, to payment of the fair value of the Dissenting Shares
shall receive payment for the Shares (plus interest determined in accordance
with Section 302A.473 of the MBCA, currently 5% per year, commencing five days
after the Effective Time) from the Surviving Corporation and/or from the
Depositary, on behalf of the Surviving Corporation, pursuant to
Sections 302A.471 and 302A.473 of the MBCA. Further, the Company shall give
Parent prompt notice upon receipt by the Company at any time prior to the
Effective Time of any notice of intent to demand the fair value of any Shares
under Section 302A.473 of the MBCA and any withdrawal of any such notice of
intent to demand fair value under Section 302A.473 of the MBCA. The Company has
agreed that it will not, except with the prior written consent of Parent,
negotiate, voluntarily make any payment with respect to, or settle or offer to
settle, any demand at any time prior to the Effective Time.
Representations and Warranties of the Company. Pursuant to the Merger
Agreement, the Company has made representations and warranties to Parent (as of
April 26, 2000, unless otherwise expressly stated in the Merger Agreement) with
respect to, among other things: (i) the organization, corporate powers and
qualification to do business of the Company and any subsidiary of the Company;
(ii) the capital structure of the Company; (iii) the due authorization,
execution, delivery and performance of the Merger Agreement; (iv) the
enforceability of the Merger Agreement; (v) the absence of conflicts of the
Merger Agreement and the transactions contemplated thereby with any provision of
the Articles of Incorporation or Bylaws of the Company or any of its
subsidiaries or, subject to certain specified exceptions, any law, statute,
ordinance, rule, regulation, order, judgment, decree, permit, license,
concession, franchise, contract, document or other instrument or obligation;
(vi) the absence of required consents, approvals, orders, authorizations,
registrations, declarations or filings; (vii) the accuracy of documents, and
financial statements included in documents, filed and to be filed with the SEC;
(viii) the absence of certain undisclosed liabilities, adverse changes or
events; (ix) accounts receivable; (x) inventories; (xi) taxes; (xii) rights to
the use of properties and the absence of owned real property; (xiii) patents,
trademarks, service marks, trade names, copyrights and other intellectual
property; (xiv) certain contractual obligations; (xv) litigation involving the
Company; (xvi) compliance with environmental laws; (xvii) employee benefit
plans; (xviii) compliance with laws; (xix) permits, licenses, registrations and
similar rights with respect to the Company's business; (xx) the Year 2000
capabilities of the Company's systems; (xxi) labor matters; (xxii) insurance;
(xxiii) the receipt of an opinion from ▇▇▇▇▇; (xxiv) the absence of ongoing
discussions or negotiations, as of the date of the Merger Agreement, with any
other party with respect to an Acquisition Proposal (as defined below); (xxv)
voting requirements regarding approval of the Merger Agreement and the
transactions contemplated thereby; (xxvi) the agreement of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ to
tender his Shares (but in no event
24
more than 19.9% of all Shares, in the aggregate) pursuant to the Offer and to
give an irrevocable proxy to Parent granting certain rights regarding the
ability to vote his Shares (but in no event more than 19.9% of all Shares, in
the aggregate) to the extent such Shares are not tendered in the Offer; (xxvii)
the Schedule 14D-9's compliance with the Exchange Act and applicable laws, rules
and regulations; (xxviii) termination of the EB Merger Agreement, in accordance
with the terms of the EB Merger Agreement; and (xxix) termination of that
certain Shareholder Agreement, dated as of March 31, 2000, by and between EB and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, in accordance with its terms.
Representations and Warranties of Parent and Purchaser. Pursuant to the
Merger Agreement, Parent and Purchaser have made representations and warranties,
jointly and severally, to the Company with respect to, among other things: (i)
the organization, corporate powers and qualification to do business of Parent
and Purchaser; (ii) the due authorization, execution, delivery and performance
of the Merger Agreement; (iii) the enforceability of the Merger Agreement; (iv)
the absence of conflicts of the Merger Agreement and the transactions
contemplated thereby with any provision of the Certificate of Incorporation or
Articles of Incorporation, as applicable, or Bylaws of Parent or Purchaser or
any law, statute, ordinance, rule, regulation, order, judgment, decree, permit,
license, concession, franchise, contract, document or other instrument or
obligation; (v) the accuracy of information furnished by Parent or Purchaser
expressly for inclusion in documents to be filed by the Company with the SEC
pursuant to the Merger Agreement; (vi) litigation involving Parent and
Purchaser; (vii) the availability of funds to consummate the transactions
contemplated by the Merger Agreement; (viii) the lack of ownership, by Parent or
any affiliate or associate of Parent, of capital stock of the Company; and (ix)
the Offer documents' compliance with the Exchange Act and applicable laws, rules
and regulations.
Interim Operations. Except as expressly contemplated by the Merger
Agreement, during the period from April 26, 2000, and continuing until the
earlier of the termination of the Merger Agreement or the Effective Time, the
Company has agreed as to itself and its subsidiaries (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and Taxes (as defined in the Merger
Agreement) when due subject to good faith disputes over such debts or Taxes, to
pay or perform its other obligations when due, and, to the extent consistent
with such business, use all reasonable efforts consistent with past practices
and policies to (i) preserve intact its present business organization,
(ii) keep available the services of its present officers and key employees and
(iii) preserve its relationships with customers, suppliers, distributors, and
others having business dealings with it.
Notwithstanding the foregoing, except as expressly contemplated by the
Merger Agreement, during the period from April 26, 2000, and continuing until
the earlier of the termination of the Merger Agreement or the Effective Time,
the Company has agreed not to (and has agreed not to permit any of its
subsidiaries to) do any of the following without the written consent of Parent:
(i) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any Stock Plan (as defined in the
Merger Agreement) or authorize cash payments in exchange for any options
granted under any such Stock Plan, except as required by the terms of such
Stock Plan or any related agreements in effect as of the date of the Merger
Agreement;
(ii) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock, except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(iii) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into or exchangeable for shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue, any such shares or
other convertible securities, other than the issuance of shares of Common
Stock pursuant to the exercise of options or warrants outstanding on the
date of the Merger Agreement;
25
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in, or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business), except for any such acquisitions
involving aggregate consideration of not more than $50,000;
(v) sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions in the ordinary course of
business; provided, however, that in no event shall the Company enter into
any agreement, option or other arrangement (including, without limitation,
any joint venture) involving the licensing of its name in any foreign
country, except for transactions in the ordinary course of business;
(vi) enter into any material agreement or other arrangement which
would constitute a Material Contract (as defined in the Merger Agreement)
if the Company or any of its subsidiaries were a party thereto as of the
date of the Merger Agreement, which agreements or other arrangements
obligate the Company to pay more than $50,000 thereunder, individually, or
more than $100,000 in the aggregate; provided, however, the Company shall
not (and shall not permit any of its subsidiaries to) enter into any retail
store leases without the prior written consent of Parent, such consent not
to be unreasonably withheld;
(vii) incur inventory other than in the ordinary course of business;
(viii) (A) increase or agree to increase the compensation payable or
to become payable to its directors, officers, employees or consultants,
except for increases in salary or wages of employees in accordance with
past practices, (B) grant any additional severance or termination pay to,
or enter into any employment or severance agreements with, any consultants,
employees, officers or directors, (C) enter into any collective bargaining
agreement (other than as required by law or extensions to existing
agreements in the ordinary course of business), or (D) establish, adopt,
enter into or amend, in any manner materially adverse to the Company or its
subsidiaries, any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers, employees or
consultants;
(ix) amend or propose to amend its Articles of Incorporation or
Bylaws;
(x) incur any indebtedness for borrowed money other than intercompany
indebtedness and indebtedness incurred in the ordinary course of business;
provided, however, in no event shall the Company or any of its subsidiaries
incur any indebtedness for borrowed money in excess of $50,000 in the
aggregate without the written consent of Parent;
(xi) take any action that would or is reasonably likely to result in a
breach of any covenant, agreement, representation or warranty in the Merger
Agreement that is qualified as to materiality; or take any action that
would or is reasonably likely to result in a breach of any covenant,
agreement, representation or warranty set forth in the Merger Agreement
that is not so qualified, which breach is reasonably likely to have a
Company Material Adverse Effect (as defined in the Merger Agreement);
(xii) make or rescind any material express or deemed election relating
to Taxes, settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or change any of its methods of reporting income or
deductions for federal income Tax purposes from those employed in the
preparation of its federal income Tax return for the taxable year ended
March 28, 1999, except as may be required by applicable law;
(xiii) settle any material litigation, such consent of Parent not to
be unreasonably withheld; or
(xiv) take, or agree in writing or otherwise to take, any of the
foregoing actions.
No Solicitation. Pursuant to the Merger Agreement, from the date of the
Merger Agreement until the earlier of the Effective Time or the termination of
the Merger Agreement, the Company has agreed that it will not and will not
authorize or permit any of its officers, directors, employees, financial
advisors, representatives or agents to (i) solicit, seek, initiate or encourage
any inquiries or proposals that constitute, or would be reasonably likely to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets of the Company and its subsidiaries, taken as whole
(other than the sale of inventory or obsolete property in the
26
ordinary course of business), sale of shares of its capital stock (including
without limitation by way of a tender offer) or similar transaction involving
such party or any of its subsidiaries, other than the transactions contemplated
by the Merger Agreement (any of the foregoing inquiries or proposals being
referred to in the Merger Agreement as an "Acquisition Proposal"), (ii) engage
in negotiations or discussions with any Person other than Parent or its
affiliates (a "Third Party") concerning, or provide any nonpublic information to
any Person relating to, any Acquisition Proposal, or (iii) agree to or recommend
any Acquisition Proposal; provided, however, that nothing contained in the
Merger Agreement shall prevent the Company or the Company Board or the Special
Committee from (A) furnishing nonpublic information to, or entering into
discussions or negotiations with, any Person in connection with an unsolicited
bona fide written Acquisition Proposal by such Person or modifying or
withdrawing its recommendation with respect to the transactions contemplated in
the Merger Agreement or recommending an unsolicited bona fide written
Acquisition Proposal to the Shareholders, if and only to the extent that
(1) the Company Board or the Special Committee believes in good faith (after
consultation with its financial and legal advisors) that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed and
would, if consummated, result in a transaction more favorable to the
Shareholders than the transactions contemplated by the Merger Agreement, and the
Company Board or the Special Committee determines in good faith after
consultation with outside legal counsel that such action is required for the
Company Board or the Special Committee to comply with its fiduciary duties to
the Shareholders under applicable law and (2) prior to furnishing such nonpublic
information to, or entering into discussions or negotiations with, such Person,
the Company Board or the Special Committee receives from such Person an executed
confidentiality and standstill agreement with terms no less favorable to the
Company than those contained in the Confidentiality Agreement, dated April 21,
1999, between ▇▇▇▇▇▇▇'▇ and the Company, as supplemented by the Letter
Agreement, dated April 7, 2000, by and among Parent, ▇▇▇▇▇▇▇'▇ and the Company;
or (B) complying with Rule 14e-2 promulgated under the Exchange Act with regard
to an Acquisition Proposal. The Company agreed not to release any Third Party
from, or waive any provision of, any standstill agreement to which it is a party
or any confidentiality agreement between it and another Person who has made, or
who may reasonably be considered likely to make, an Acquisition Proposal, unless
the Company Board or the Special Committee determines in good faith after
consultation with outside legal counsel that such action is necessary for the
Company Board or the Special Committee to comply with its fiduciary duties to
the Shareholders under applicable law. Notwithstanding the foregoing, the Merger
Agreement provides that the Company need not refuse a request from any Person
who has signed a standstill agreement with the Company to make an Acquisition
Proposal to the chief executive officer of the Company or the Company Board if
the Company Board or the Special Committee determines in good faith after
consultation with outside legal counsel that such action is necessary for the
Company Board or the Special Committee to comply with its fiduciary duties to
Shareholders under applicable law.
Pursuant to the Merger Agreement, the Company agreed to notify Parent
immediately after receipt by the Company (or its advisors) of any Acquisition
Proposal or any request for nonpublic information in connection with an
Acquisition Proposal or for access to its properties, books or records by any
Person that informs the Company that it is considering making, or has made, an
Acquisition Proposal. Such notice must be made orally and in writing and must
indicate in reasonable detail the terms and conditions of such proposal, inquiry
or contact (including, without limitation, the identity of the Person making the
Acquisition Proposal). The Company also agreed to continue to keep Parent
informed, on a current basis, of the status of any such discussions or
negotiations and the terms being discussed or negotiated. Pursuant to the Merger
Agreement, neither the Company Board nor the Special Committee may withdraw,
modify or change, or propose to withdraw, modify or change, in a manner adverse
to Parent, the approval or recommendation by the Company Board or the Special
Committee, as the case may be, of the Offer, the Merger Agreement or the Merger
unless the Company Board or the Special Committee, as the case may be,
determines, in the exercise of its fiduciary duties, that it is necessary to do
so; provided, however, the preceding restriction does not prohibit the Company
from taking and disclosing to the Shareholders a position contemplated by Rule
14e-2 promulgated under the Exchange Act.
Inspection of Records; Access and Information; Cooperation and
Notification. Pursuant to the Merger Agreement, subject to compliance with
applicable law, from the date of the Merger Agreement, until the earlier of the
Effective Time or the termination of the Merger Agreement, the Company has
agreed to confer on a regular and frequent basis with one or more
representatives of Parent to report on the general status of ongoing operations
and litigation, and to promptly provide Parent or its counsel with copies of all
filings made by the
27
Company with the SEC or with any court, administrative agency or commission or
other governmental authority or instrumentality (each, a "Governmental Entity")
in connection with the Merger Agreement, the Merger and the transactions
contemplated thereby. In addition, each party has agreed to notify the other
party of, and to use all commercially reasonable efforts to cure before the
Closing Date (as defined in the Merger Agreement), any event, transaction or
circumstance, as soon as practical after it becomes known to the notifying
party, that causes or will cause any covenant or agreement of the notifying
party under the Merger Agreement to be breached in any material respect or that
renders or will render untrue in any material respect any representation or
warranty of the notifying party contained in the Merger Agreement.
Further, pursuant to the Merger Agreement, upon reasonable notice, the
Company has agreed to (and has agreed to cause its subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of
Parent access, during normal business hours during the period from the date of
the Merger Agreement to the earlier of the Effective Time or the termination of
the Merger Agreement, to all its personnel, properties, books, contracts,
commitments and records and, during such period, the Company has agreed to, and
has agreed to cause each of its subsidiaries to, furnish promptly to Parent all
information concerning its business, properties and personnel as Parent may
reasonably request, and Parent shall hold any of such information that is
nonpublic in confidence (as described in the Merger Agreement). In connection
with such access, ▇▇▇▇▇▇ has agreed to act in a manner as not to unreasonably
interfere with the operations of the Company and its subsidiaries. In addition,
pursuant to the Merger Agreement the Company has agreed to (and has agreed to
cause its subsidiaries to) offer to the representatives of Parent access, during
normal business hours during the period from the date of the Merger Agreement,
to the earlier of the Effective Time or the termination of the Merger Agreement,
to all of the Company's and its subsidiaries' current employees for purposes of
conducting any analysis reasonably related to such employees' employment by the
Company or any of its subsidiaries and the prospect of such employees' continued
employment by Parent, the Surviving Corporation, its subsidiaries or any other
affiliate of Parent after the Effective Time; provided, however, that such
access shall be subject to the prior consent of the Company, such consent not to
be unreasonably withheld; and further provided, that a representative of the
Company shall be entitled to participate in any meetings with employees. In
connection with such access, ▇▇▇▇▇▇ has agreed to act in a manner as not to
unreasonably interfere with the operations of the Company and its subsidiaries.
Employee Matters. Pursuant to the Merger Agreement, for a period of at
least one year after the Offer Completion, Parent has agreed to (or will cause
the Surviving Corporation, its subsidiaries or any other affiliate of Parent to)
maintain welfare and pension benefit plans, programs and arrangements for the
benefit of Persons who were employees of the Company or any subsidiary of the
Company immediately prior to the Offer Completion for as long as they continue
to be employees of Parent, the Surviving Corporation, its subsidiaries or any
other affiliate of Parent, which plans, programs and arrangements are, in the
aggregate, no less favorable than those provided by the Company and any
subsidiary of the Company to those Persons (provided that the foregoing does not
create any obligation regarding stock or stock-based compensation). After the
Effective Time, for purposes of determining eligibility, vesting and entitlement
to vacation and severance benefits for such Persons under any compensation,
severance, welfare, pension, benefit or savings plan of Parent or any of its
affiliates in which such Persons become eligible to participate, employment by
the Company or any subsidiary of the Company will be credited as if such Persons
had been employed by Parent or any affiliate of Parent.
Indemnification Rights. The Merger Agreement provides that all rights to
indemnification, expense advancement and exculpation existing in favor of any
present or former director or officer of the Company or any subsidiary of the
Company, as provided in the Articles of Incorporation, Bylaws or similar
organizational documents of the Company or any subsidiary of the Company, on the
date of the Merger Agreement, will survive the Merger for a period of six years
after the Effective Time (or the final disposition of any claim made before the
expiration of such six-year period) with respect to matters occurring at or
prior to the Effective Time, and that Parent guarantees, effective from and
after the Effective Time, all obligations of the Surviving Corporation and its
subsidiaries in respect of indemnification and expense reimbursement. The
Articles of Incorporation provide that, to the fullest extent permitted by the
MBCA (as in effect at the time such Articles of Incorporation took effect or as
subsequently amended), a director of the Company shall not be liable to the
Company or its shareholders for monetary damages for breach of such director's
fiduciary duty as a director. The Bylaws of the Company provide that a director
shall not be liable to the Company or its shareholders for dividends illegally
28
declared, distributions illegally made to shareholders or any other action taken
in good faith reliance upon financial statements of the Company represented to
such director to be correct by the chief executive officer of the Company or the
officer having charge of the Company's books of account or certified by an
independent or certified public accountant to fairly reflect the financial
condition of the Company, nor shall a director be liable if in good faith in
determining the amount available for dividends or distributions the Company
Board values the assets in a manner allowable under applicable law. Such Bylaws
also provide that the Company shall indemnify a person for such expenses and
liabilities, in such manner, under such circumstances, and to such extent, as
required or permitted by Section 302A.521 of the MBCA, as amended from time to
time, or as permitted by other provisions of law.
Directors' and Officers' Liability Insurance. Pursuant to the Merger
Agreement, for a period from the Offer Completion until at least six years after
the Effective Time, Parent has agreed to cause the Surviving Corporation to
maintain in effect either (i) the current policy of directors' and officers'
liability insurance maintained by the Company (provided that Parent or the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions that are no less
advantageous in any material respect to the insured parties thereunder) with
respect to claims arising from facts or events which occurred at or before the
Effective Time (including consummation of the transactions contemplated by the
Merger Agreement), or (ii) a runoff (i.e., "tail") policy or endorsement with
respect to the current policy of directors' and officers' liability insurance
covering claims asserted within six years after the Effective Time arising from
facts or events which occurred at or before the Effective Time (including
consummation of the transactions contemplated by the Merger Agreement); and such
policies or endorsements will name as insureds thereunder all present and former
directors and officers of the Company or its subsidiary. Notwithstanding the
foregoing, in the event the amount of the annual premiums for the insurance
coverage required pursuant to the foregoing exceeds 200% of the amount of the
annual premiums paid as of the date of the Merger Agreement by Parent for such
coverage or equivalent coverage, Parent shall use all reasonable efforts to
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to no more than 200% of the amount of the
annual premiums paid as of the date of the Merger Agreement by the Company for
such coverage.
Legal Conditions to the Merger. The Merger Agreement provides as follows:
(i) The Company, Parent and Purchaser shall each use its reasonable
best efforts to (A) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary and proper under applicable
law to consummate and make effective the transactions contemplated by the
Merger Agreement as promptly as practicable, (B) obtain from any
Governmental Entity or any other third party any material consents,
licenses, permits, waivers, approvals, authorizations or orders required to
be obtained or made by the Company or Parent or any of their subsidiaries
in connection with the authorization, execution and delivery of the Merger
Agreement and the consummation of the transactions contemplated by the
Merger Agreement including, without limitation, the completion of the Offer
and the Merger, and (C) as promptly as practicable and, with respect to the
Offer, in any event within the time periods specified in the Merger
Agreement, make all necessary filings, and thereafter make any other
required submissions, with respect to the Merger Agreement, the Offer and
the Merger required under (1) the Securities Act of 1933, as amended, and
the Exchange Act, and any other applicable federal or state securities
laws, (2) the HSR Act, and any related governmental request thereunder, and
(3) any other applicable law (provided that nothing stated in the Merger
Agreement shall require the Company to take or cause to be taken any
action, or to do or cause to be done anything, which the Company Board, in
the exercise of its fiduciary duties, determines, in good faith after
consultation with its legal advisors, should not be taken or done). The
Company, Parent and Purchaser shall cooperate with each other in connection
with the making of all such filings, including providing copies of all such
documents to the non-filing party and its advisors prior to filing and, if
requested, consult with the non-filing party regarding additions, deletions
or changes suggested by the non-filing party in connection therewith.
(ii) The Company and Parent agree, and shall cause each of their
respective subsidiaries, to cooperate and to use their respective
reasonable best efforts to obtain any government clearances required for
completion of the Offer and the Closing (as defined in the Merger
Agreement) (including compliance with the HSR Act and any applicable
foreign government reporting requirements), to respond to any government
29
requests for information, and, to the extent not inconsistent with the
fiduciary duties of their respective Board of Directors, to contest and
resist any action, including any legislative, administrative or judicial
action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) that restricts, prevents or prohibits the completion of the
Offer, the consummation of the Merger or any other transactions
contemplated by the Merger Agreement. Each of the Company and Parent shall
use reasonable efforts to make its initial filing under the HSR Act with
the appropriate Governmental Entities within 10 business days after the
date of the Merger Agreement. The parties to the Merger Agreement will
consult and cooperate with one another, and consider in good faith the
views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party to the Merger Agreement in
connection with proceedings under or relating to the HSR Act, or any other
federal, state or foreign antitrust or fair trade law. The Company, Parent
and Purchaser shall cooperate and work together in any proceedings or
negotiations with any Governmental Entity relating to any of the foregoing.
(iii) Each of the Company and Parent shall give (or shall cause their
respective subsidiaries to give) any notices to third parties related to or
required in connection with the completion of the Offer and Merger, other
than those notices, the failure of which to give is not reasonably likely
to have a Company Material Adverse Effect or a Parent Material Adverse
Effect (as defined in the Merger Agreement), as applicable.
Public Disclosure. Pursuant to the Merger Agreement, the Company and
Parent agreed to consult with each other before issuing, and to use reasonable
efforts to agree upon, any press release or other public statement regarding any
of the transactions contemplated by the Merger Agreement and agreed that they
would not issue any such press release or public statement prior to such
consultation; provided, however, the Merger Agreement does not prevent any party
from making a public disclosure it believes in good faith, after consultation
with its legal advisors, is legally required or required by any listing or
trading agreement concerning its publicly traded securities.
Other Conditions to the Merger. The Merger Agreement provides that the
respective obligations of each party to the Merger Agreement to effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time of
the following conditions:
(i) Parent shall have caused Purchaser to make the Offer, and
Purchaser shall have purchased the Shares validly tendered and not
withdrawn pursuant to the Offer, provided that this condition shall be
deemed to have been satisfied with respect to the obligation of Parent and
Purchaser to effect the Merger if Purchaser fails to accept tender of or
pay for Shares pursuant to the Offer in violation of the terms of the Offer
or of the Merger Agreement;
(ii) if so required by the MBCA, the Merger Agreement and the Merger
shall have been approved in the manner required by the MBCA by the holders
of a majority of the issued and outstanding Shares;
(iii) any waiting period applicable to the purchase of the Shares
under the HSR Act shall have expired or been terminated; and
(iv) no Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any order, executive order, stay, decree, judgment or
injunction or statute, rule or regulation which is in effect and which has
the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time (with respect to clauses (ii) through (v) below, by written
notice by the terminating party to the other party), whether before or after
approval of the Merger Agreement and the Merger by the Shareholders:
(i) by mutual written consent of the Company and Parent; or
(ii) by either the Company or Parent if the Offer Completion shall not
have occurred by August 4, 2000 (the "Outside Date"); provided, however,
that the right to terminate the Merger Agreement under this clause (ii) is
not available to a party if such party's failure to fulfill any obligation
under the Merger Agreement has been the cause of or resulted in the failure
of the Offer Completion to occur on or before such date, and provided
further that Parent may not so terminate the Merger Agreement under this
clause
30
(ii) unless the failure of the Offer Completion to occur prior to the
Outside Date resulted from the failure of an Offer Condition to be
satisfied; or
(iii) by either the Company or Parent if a court of competent
jurisdiction or other Governmental Entity shall have issued a nonappealable
final order, decree or ruling or taken any other nonappealable final
action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the consummation of the Offer or the
Merger; or
(iv) by the Company or Parent, if (A) the Company Board or the Special
Committee, in the exercise of its fiduciary duties, in good faith after
consultation with its legal advisors, shall have withdrawn or modified, in
any manner adverse to Parent as reasonably determined by Parent, its
recommendation of the Merger Agreement, the Offer or the Merger prior to
the Offer Completion; (B) the Company Board or the Special Committee, in
the good faith exercise of its fiduciary duties, after consultation with
its legal advisors, shall have recommended to the Shareholders an
Alternative Transaction (as defined below) prior to the Offer Completion;
provided, however, the Company shall not terminate the Merger Agreement
under this clause (B) and enter into a definitive agreement for such
Alternative Transaction until the expiration of five business days
following Parent's receipt of written notice advising Parent that the
Company has received a proposal for an Alternative Transaction, which
notice shall specify the material terms and conditions of such proposal
(including a copy thereof), identify the Person making such proposal and
state whether the Company intends to enter into a definitive agreement for
such Alternative Transaction; and further provided the Company shall have
afforded a reasonable opportunity within such five business day period to
Parent after delivering such notice to make such adjustments to the terms
and conditions of the Merger Agreement as would enable the Company Board or
the Special Committee to maintain its recommendation of the Merger
Agreement, the Offer and the Merger to the Shareholders and enable the
Company to proceed with the Merger on such adjusted terms; (C) a tender
offer or exchange offer for 35% or more of the outstanding shares of the
Common Stock is commenced (other than by Parent or an affiliate of Parent)
and the Company Board or the Special Committee recommends, prior to the
Offer Completion, that the Shareholders tender their shares of Common Stock
in such tender or exchange offer; or (D) the Offer expires or is terminated
or withdrawn pursuant to its terms as a result of the failure of any of the
Offer Conditions to be satisfied or waived prior to the Expiration Date
(provided that neither Parent nor Purchaser may terminate the Merger
Agreement under this clause (D) if such Offer Conditions are not satisfied
as a result of a breach by Parent or Purchaser of obligations of Parent or
Purchaser under the Merger Agreement); or
(v) by the Company or Parent at any time prior to the Offer
Completion, if there has been a breach of any representation, warranty,
covenant or agreement on the part of the other party set forth in the
Merger Agreement, which breach would impair the ability of the breaching
party to consummate the transactions contemplated by the Merger Agreement
or, if the breach is by the Company, would have a Company Material Adverse
Effect and which shall not have been cured within 15 days following receipt
by the breaching party of written notice of such breach from the other
party; provided, however, to the extent that any such representation,
warranty, covenant or agreement of the Company is qualified as to
materiality, such representation, warranty, covenant or agreement by the
Company shall not be deemed to be so qualified for purposes of this clause
(v).
In the event of termination of the Merger Agreement under the foregoing
clauses (i) through (v), the Merger Agreement shall immediately become void and
there shall be no liability or obligation on the part of the Company, Parent or
their respective officers, directors, shareholders or affiliates, except as
specifically set forth in the Merger Agreement; provided, however, that such
termination shall not limit liability for a willful and material breach of the
Merger Agreement; and further provided, that the provisions of the Merger
Agreement relating to any termination fees and expenses shall remain in full
force and effect and survive any termination of the Merger Agreement.
As used in the Merger Agreement, an "Alternative Transaction" means either
(i) a transaction pursuant to which any Third Party acquires more than 35% of
the outstanding shares of Common Stock pursuant to a tender offer or exchange
offer or otherwise, (ii) a merger or other business combination involving the
Company pursuant to which any Third Party acquires more than 35% of the
outstanding shares of Common Stock or of the entity surviving such merger or
business combination, or (iii) any other transaction pursuant to which any Third
31
Party acquires assets (including for this purpose the outstanding equity
securities of subsidiaries of the Company) of the Company having a fair market
value (as determined by the Company Board in good faith) equal to more than 35%
of the fair market value of all the assets of the Company and its subsidiaries,
taken as a whole, immediately prior to such transaction.
Termination Fee. Pursuant to the Merger Agreement, the Company has agreed
to pay Parent a termination fee equal to $3,000,000.00, plus up to $500,000.00
for fees and expenses incurred in connection with the transactions contemplated
by the Merger Agreement (the "Termination Fee"), if the Merger Agreement is
terminated:
(i) pursuant to Sections 8.1(b) (clause (ii) above, under
"Termination") or 8.1(d)(iv) (clause (iv)(D) above, under "Termination") of
the Merger Agreement, if in either case a proposal for an Alternative
Transaction involving the Company shall have been made on or after April
26, 2000, and prior to the Offer Completion; provided, however, such
termination occurs upon the failure to satisfy the Minimum Condition; or
(ii) pursuant to Section 8.1(d)(i), (ii) or (iii) (clauses (iv)(A),
(B) or (C) above, under "Termination") of the Merger Agreement; or
(iii) pursuant to Section 8.1(e) (clause (v) above, under
"Termination") of the Merger Agreement, but only if a proposal for an
Alternative Transaction involving the Company shall have been made prior to
the Offer Completion and either a definitive agreement for an Alternative
Transaction is entered into, or an Alternative Transaction is consummated,
within 12 months after such termination.
Expenses. Pursuant to the Merger Agreement, and subject to Parent's right
to the Termination Fee, all fees and expenses incurred by the parties in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, if the Merger is not
consummated.
Electronics Boutique Termination Fee. The Merger Agreement states that
immediately after its execution and the execution of the Shareholder Agreement,
Parent will wire transfer immediately available funds to a bank account
designated by the Company in an amount equal to the termination fee required to
be paid by the Company pursuant to the EB Merger Agreement (the "EB Termination
Fee"), which funds shall be used by the Company solely for such purpose. The
Merger Agreement states that the Company shall pay Parent an amount (the
"Reimbursement Fee") equal to the EB Termination Fee in the event (i) a
Termination Fee is paid or payable by the Company to Parent pursuant to the
terms of the Merger Agreement or (ii) the Merger Agreement is terminated by
Parent pursuant to Section 8.1(e) of the Merger Agreement (clause (v) above,
under "Termination"). In no event shall more than one Reimbursement Fee be
payable to Parent under the Merger Agreement.
Assignment. Neither the Merger Agreement nor any of the rights, interests
or obligations thereunder shall be assigned by any of the parties to the Merger
Agreement (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, the Merger
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns. Notwithstanding
anything in the Merger Agreement to the contrary, the direct parent of Purchaser
may at any time prior to the Effective Time transfer all of the capital stock of
Purchaser to Parent or to another wholly-owned subsidiary of Parent, and the
Company acknowledged and agreed that such transfer may be consummated at or
before such time.
Amendments. The Merger Agreement may be amended, modified or supplemented
by the parties thereto, by action taken or authorized by their respective Board
of Directors, at any time before or after approval of the matters presented in
connection with the Merger by the Shareholders, but, after any such approval, no
amendment, modification or supplement shall be made which decreases the amount,
or changes the form, of Merger Consideration, or by law requires further
approval by the Shareholders, in each case without further approval by the
Shareholders. The Merger Agreement may not be amended, modified or supplemented
except by an instrument in writing signed on behalf of each of the parties
thereto.
32
SHAREHOLDER AGREEMENT AND OTHER AGREEMENTS.
Shareholder Agreement. Pursuant to the Shareholder Agreement, ▇▇. ▇▇▇▇▇▇
agreed to tender, pursuant to the Offer, all Shares then held of record by
▇▇. ▇▇▇▇▇▇, or with respect to which ▇▇. ▇▇▇▇▇▇ is the Beneficial Owner (as
defined in the Shareholder Agreement), as of the date of the commencement of the
Offer, and any shares of Common Stock thereafter acquired by ▇▇. ▇▇▇▇▇▇ prior to
the expiration of the Offer; provided, however, that such shares shall be
limited to 19.9% of the outstanding shares of Common Stock in the aggregate. If
for any reason the shares of Common Stock tendered by ▇▇. ▇▇▇▇▇▇ represent less
than 19.9% of the issued and outstanding shares of Common Stock in the
aggregate, ▇▇. ▇▇▇▇▇▇ also agreed to vote the shares of Common Stock then held
of record by ▇▇. ▇▇▇▇▇▇ or with respect to which he is the Beneficial Owner (but
not to exceed the amount by which 19.9% of the issued and outstanding shares of
Common Stock exceeds the number of shares tendered by him in the Offer), and he
has granted an irrevocable proxy to an officer of Parent to vote those shares of
Common Stock in favor of the Merger at the Shareholders meeting contemplated in
the Merger Agreement and against certain competing proposals and transactions.
▇▇. ▇▇▇▇▇▇ also waived any rights to dissent from the Merger. The Shareholder
Agreement terminates if either the Merger is completed or the Merger Agreement
is terminated in accordance with its terms. A copy of the Shareholder Agreement
is filed as an exhibit to Parent's Schedule TO and is incorporated herein by
reference. The foregoing summary of the Shareholder Agreement is qualified in
its entirety by reference to the Shareholder Agreement.
Letter Agreements Regarding Confidentiality. Pursuant to a Letter
Agreement, dated April 21, 1999 (the "Original Confidentiality Agreement"), the
Company agreed to furnish certain information to ▇▇▇▇▇▇▇'▇ to allow ▇▇▇▇▇▇▇'▇ to
consider a possible transaction with the Company, and ▇▇▇▇▇▇▇'▇ agreed to keep
such information confidential. Pursuant to the Original Confidentiality
Agreement, ▇▇▇▇▇▇▇'▇ agreed that, for a period of two years from the date
thereof and subject to certain conditions, without the Company's authorization,
▇▇▇▇▇▇▇'▇ (and any person acting in concert with ▇▇▇▇▇▇▇'▇) would refrain from
taking certain actions with respect to a transaction with the Company or taking
control of the Company. Pursuant to the Original Confidentiality Agreement,
▇▇▇▇▇▇▇'▇ agreed that, for a period of two years from the date thereof and
subject to certain conditions, ▇▇▇▇▇▇▇'▇ (and certain of its affiliates) would
refrain from taking certain actions with respect to the employees of the
Company, including influencing any such employee to leave the employ of the
Company. The Company, Parent and ▇▇▇▇▇▇▇'▇ executed a Letter Agreement, dated
April 7, 2000 (the "Supplemental Confidentiality Agreement" and, together with
the Original Confidentiality Agreement, the "Confidentiality Agreement"),
pursuant to which Parent and ▇▇▇▇▇▇▇'▇ agreed that certain restrictions on each
such company's actions regarding the Company's employees would remain in effect
from the date of the Original Confidentiality Agreement through March 31, 2002.
Pursuant to the Supplemental Confidentiality Agreement, Parent also agreed to be
bound by the Confidentiality Agreement as if it were Babbage's and that all
obligations of ▇▇▇▇▇▇▇'▇ in the Original Confidentiality Agreement shall be
deemed to be joint and several obligations of Parent and ▇▇▇▇▇▇▇'▇. Pursuant to
the Merger Agreement, the Company, Parent and Purchaser agreed that the
Confidentiality Agreement shall remain in full force and effect until the
Effective Time, without modification, except that the Confidentiality Agreement
was deemed to have been dated and restated as of the date of the Merger
Agreement and all obligations contained in the Confidentiality Agreement that
extend for two years from and after the date of the Confidentiality Agreement
were deemed to extend for two years from the date of the Merger Agreement.
Copies of the Original Confidentiality Agreement and the Supplemental
Confidentiality Agreement are filed as exhibits to Parent's Schedule TO and are
incorporated herein by reference. The foregoing summary is qualified in its
entirety by reference to the Confidentiality Agreement.
OTHER MATTERS.
Effects of Inability to Consummate the Merger. Pursuant to the Merger
Agreement, following the consummation of the Offer and subject to certain other
conditions, Purchaser will be merged with and into the Company. If, following
the Offer, approval of the Company's Shareholders is required by applicable law
in order to consummate the Merger of Purchaser with the Company, the Company
will submit the Merger to the Company's Shareholders for approval. If the Merger
is submitted to the Company's Shareholders for approval, the Merger will require
the approval of the holders of a majority of the outstanding Shares, including
the Shares owned by Purchaser. If the Offer is consummated, and the Minimum
Condition is satisfied without being reduced or waived, Purchaser will be able
to approve the Merger without the vote of any other Shareholder.
33
If the Merger is consummated, Shareholders of the Company who elected not
to tender their Shares in the Offer will receive the same amount of
consideration in exchange for each Share as they would have received in the
Offer, subject to their rights to exercise dissenters' rights.
If, following the consummation of the Offer, the Merger is not consummated,
Parent will indirectly control the number of Shares acquired by Purchaser
pursuant to the Offer. Under the Merger Agreement, promptly following payment by
Purchaser for Shares purchased pursuant to the Offer, and from time to time
thereafter, subject to applicable law, the Company has agreed to take all lawful
actions necessary to cause at least a majority of members of the Company Board
to consist of persons designated by Parent (whether by election or by the
resignation of existing directors and appointment of Parent designees). As a
result of its ownership of such Shares and right to designate nominees for
election to the Company Board, Parent indirectly will be able to influence
decisions of the Company Board and the decisions of Purchaser as a shareholder
of the Company. This concentration of influence in one shareholder may adversely
affect the market value of the Shares.
If Parent controls more than 50% of the outstanding Shares following the
consummation of the Offer but the Merger is not consummated, Shareholders of the
Company, other than those affiliated with Parent, will lack sufficient voting
power to elect directors or to cause other actions to be taken which require
majority approval.
Statutory Requirements. Under the MBCA and the Articles of Incorporation,
the approval of the Company Board and, unless Parent shall directly or
indirectly acquire 90% or more of the outstanding Shares, the affirmative vote
of the holders of a majority of the outstanding Shares, including the Shares
held by Purchaser and its affiliates, is required to approve the Merger
Agreement and the transactions contemplated thereby, including the Merger.
The Company Board and the Special Committee have each unanimously approved
the Offer, the Merger and the Merger Agreement. Unless the Merger is consummated
pursuant to the short-form merger provisions under the MBCA described below (in
which case no further action by the Shareholders of the Company will be required
to complete the Merger), the only remaining required corporate action of the
Company to effect the Merger will be the approval of the Merger Agreement and
the transactions contemplated thereby by the affirmative vote of the holders of
a majority of the outstanding Shares.
Under Section 302A.621 of the MBCA, if Purchaser acquires at least 90% of
the outstanding Shares, Purchaser will be able to approve the Merger without a
vote of the Company's Shareholders. In such event, Purchaser anticipates that it
will take all necessary and appropriate action to cause the Merger to become
effective as soon as reasonably practicable after such acquisition without a
meeting of the Company's Shareholders. If Purchaser does not acquire at least
90% of the outstanding Shares pursuant to the Offer or otherwise, a
significantly longer period of time may be required to effect the Merger,
because a vote of the Company's Shareholders would be required under the MBCA.
Pursuant to the Merger Agreement, the Company has agreed to take all action
necessary under the MBCA and its Articles of Incorporation and Bylaws to convene
a meeting of its Shareholders promptly following consummation of the Offer to
consider and vote on the Merger, if a Shareholders' vote is required. If
Purchaser owns a majority of the outstanding Shares, approval of the Merger can
be obtained without the affirmative vote of any other Shareholder of the
Company.
Dissenters' Rights. No dissenters' rights are available in connection with
this Offer. However, in connection with the Merger, Shareholders would have
certain rights to dissent and demand the fair value of their Shares under
Section 302A.471 and Section 302A.473 of the MBCA. Dissenting Shareholders who
comply with the requisite statutory procedures under the MBCA would be entitled
to a judicial determination and payment of the fair value of their Shares,
immediately before the Effective Time, together with interest thereon, at the
statutory rate of 5% per year, from the date five days after the Merger is
consummated until the date of payment. Under the MBCA, in fixing the fair value
of the Shares, a court may take into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The foregoing summary of the rights of dissenting Shareholders does
not purport to be a complete statement of the procedures to be followed by
Shareholders desiring to exercise any available dissenters' rights.
34
THE PRESERVATION AND EXERCISE OF DISSENTERS' RIGHTS REQUIRE STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF THE MBCA.
Going Private Transactions. Rule 13e-3 under the Exchange Act is
applicable to certain "going-private" transactions. Purchaser does not believe
that Rule 13e-3 will be applicable to the Merger, unless, among other things,
the Merger is completed more than one year after termination of the Offer. If
applicable, Rule 13e-3 would require, among other things, that certain financial
information regarding the Company and certain information regarding the fairness
of the Merger and the consideration offered to minority Shareholders be filed
with the SEC and disclosed to minority Shareholders prior to consummation of the
Merger.
SECTION 12. DIVIDENDS AND DISTRIBUTIONS.
As described in Section 11, the Merger Agreement provides that, from April
26, 2000 to the Effective Time (unless ▇▇▇▇▇▇ agrees otherwise in writing), the
Company will not do any of the following:
(i) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any Stock Plan or authorize cash
payments in exchange for any options granted under any such Stock Plan,
except as required by the terms of such Stock Plan or any related
agreements in effect as of May 4, 2000;
(ii) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock, except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
(iii) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into or exchangeable for shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue, any such shares or
other convertible securities, other than the issuance of shares of Common
Stock pursuant to the exercise of options or warrants outstanding on
May 4, 2000; or
(iv) amend the Company's Articles of Incorporation or Bylaws or other
charter documents.
SECTION 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NASDAQ NATIONAL
MARKET LISTING AND EXCHANGE ACT REGISTRATION.
Market for the Shares. The purchase of Shares pursuant to the Offer will
reduce the number of Shares that might otherwise trade publicly and will reduce
the number of holders of Shares, which could adversely affect the liquidity and
market value of the remaining Shares held by the public. Purchaser cannot
predict whether the reduction in the number of Shares that might otherwise trade
publicly will have an adverse or beneficial effect on the market price for, or
marketability of, the Shares or whether such reduction will cause future market
prices to be greater or less than the Per Share Amount.
Nasdaq National Market Listing. The Shares are listed on The Nasdaq
National Market. According to the published guidelines of The Nasdaq National
Market, the Shares might no longer be eligible for listing on The Nasdaq
National Market if, among other things, either (i) the number of Shares publicly
held is less than 750,000, there are fewer than 400 holders of round lots, the
aggregate market value of publicly held shares is less than $5,000,000, the net
tangible assets of the Company are less than $4,000,000 and there are fewer than
two registered and active marketmakers for the Shares, or (ii) the number of
Shares publicly held is less than 1,100,000, there are fewer than 400 holders of
round lots, the aggregate market value of publicly held Shares is less than
$15,000,000, there are fewer than four registered and active marketmakers and
either (x) the Company's market capitalization is less than $50,000,000 or
(y) the total assets and total revenue of the Company for the most recently
completed fiscal year or two of the three most recently completed fiscal years
are less than $50,000,000. Shares held directly or indirectly by directors or
officers of the Company or beneficial owners of more than 10% of the Shares are
not considered as being publicly held for purposes of determining compliance
with these criteria.
If the Shares cease to be listed on The Nasdaq National Market, the market
for the Shares could be adversely affected. It is possible that the Shares would
be traded on other securities exchanges (with trades published by such
exchanges), the Nasdaq SmallCap Market, the OTC Bulletin Board or in a local or
regional over-the-counter
35
market. The extent of the public market for the Shares and the availability of
such quotations would, however, depend upon the number of holders of Shares and
aggregate market value of the Shares remaining at such time, the interest in
maintaining a market in the Shares on the part of securities firms, the possible
termination of registration of the Shares under the Exchange Act, as described
below, and other factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Such registration of the Shares may be terminated upon application
of the Company to the SEC if the Shares are not listed on a national securities
exchange, The Nasdaq Stock Market or the OTC Bulletin Board and there are fewer
than 300 holders of record of the Shares. Termination of registration of the
Shares under the Exchange Act would reduce substantially the information
required to be furnished by the Company to the Shareholders and to the SEC and
would render inapplicable certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
Section 14(a) that the Company furnish to the Shareholders proxy materials in
connection with shareholders' meetings and the related requirement to furnish an
annual report to holders of Shares. Further, the ability of "affiliates" of the
Company and persons holding "restricted securities" of the Company to dispose of
such securities pursuant to Rule 144 under the Securities Act of 1933, as
amended, may be impaired or eliminated. If registration of the Shares under the
Exchange Act were terminated, the Shares would no longer be eligible for listing
on The Nasdaq Stock Market or the OTC Bulletin Board. It is the current
intention of Parent to cause the Company to apply for termination of
registration of the Shares after the consummation of the Offer if the
requirements for termination of registration are met.
Margin Regulations. The Shares currently are "margin securities" under the
rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of the Shares. Depending upon factors similar
to those described above regarding listing and market quotations, it is possible
that following the Offer, the Shares would cease to constitute "margin
securities" for the purpose of the Federal Reserve Board's margin regulations
and, therefore, could no longer be used as collateral for margin loans made by
brokers.
SECTION 14. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, Purchaser will not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-l(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Shares promptly after
expiration or termination of the Offer), to pay for any Shares, and (subject to
any such rules or regulations) may postpone the acceptance for payment of or
payment for any Shares tendered, and may amend or terminate (if, when and as
permitted by the Merger Agreement) the Offer, (a) unless the following
conditions have been satisfied: (1) there have been validly tendered and not
withdrawn before the Expiration Date a number of Shares which, together with all
Shares already owned, directly or indirectly, by Parent or Purchaser, represents
at least 51% of the total voting power of the outstanding securities of the
Company entitled to vote in the election of directors or in a merger, calculated
on a fully diluted basis, on the date of purchase ("on a fully diluted basis"
having the following meaning, as of any date: the number of Shares outstanding,
together with the number of Shares the Company is then required to issue
pursuant to obligations outstanding at that date under employee or non-employee
director stock option or other benefit plans or otherwise) and (2) any
applicable waiting periods under the HSR Act shall have expired or been
terminated before the Expiration Date, or (b) if at any time on or after May 4,
2000 and before the Expiration Date, any of the following shall have occurred:
(i) any Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree
or temporary or preliminary injunction that shall not have been lifted
prior to the Expiration Date or permanent injunction or other order (other
than the application of the waiting period provisions of the HSR Act to the
Offer or the Merger) which is in effect and which (A) restricts, prevents
or prohibits consummation of the transactions contemplated by the Merger
Agreement, including the Offer or the Merger, (B) prohibits or limits
materially the ownership or operation by Parent or any of its subsidiaries
of all or any portion of the business or assets of the Company and its
subsidiaries, taken as a whole, or compels the Company, Parent or any
subsidiary of Parent to dispose of or hold separate all or any material
portion of the business or assets of the Company and its subsidiaries,
taken as a whole, as a result of the completion of the Offer or the Merger,
or (C) imposes limitations on the ability of Parent, Purchaser, or any
subsidiary of Parent to exercise effectively full rights of ownership of
any Shares, including without limitation the right to vote any Shares
acquired by Purchaser pursuant to the Offer or
36
otherwise on all matters properly presented to the Shareholders, including
without limitation the approval of the Merger Agreement and the
transactions contemplated thereby;
(ii) there shall be instituted by any Governmental Entity and pending
any action or proceeding before any United States or foreign court or
governmental entity or authority of competent jurisdiction seeking any
order, decree or injunction having any effect set forth in clause (i)
above;
(iii) the representations and warranties of the Company contained in
the Merger Agreement that are qualified as to Company Material Adverse
Effect (as defined in the Merger Agreement) shall not be true and correct
in any respect, and the representations and warranties of the Company
contained in the Merger Agreement that are not so qualified shall not be
true and correct in any respect and which untruth or incorrectness,
individually or in the aggregate, are reasonably likely to have a Company
Material Adverse Effect or materially impair the ability of the Company to
consummate the transactions contemplated by the Merger Agreement as of the
Expiration Date as though made on and as of such date (except for
representations and warranties made as of a specified date, unless they
shall not be true and correct as of the specified date);
(iv) the Company shall not have complied in all material respects with
its covenants under the Merger Agreement and such failure continues until
15 calendar days after actual receipt by it of written notice from Parent
setting forth in reasonable detail the nature of such failure;
(v) there shall have occurred any Company Material Adverse Effect, or
any development that would have a Company Material Adverse Effect, since
May 4, 2000;
(vi) the Merger Agreement shall have been terminated in accordance
with its terms;
(vii) the Company Board or the Special Committee shall have
(A) withdrawn or modified or changed, in any manner adverse to Parent or
Purchaser, its approval or recommendation of the Offer, the Merger or the
Merger Agreement, (B) accepted, approved or recommended any Alternative
Transaction, or (C) resolved or publicly disclosed any intention to do any
of the foregoing; or
(viii) the Federal Reserve Board or any other federal governmental
authority shall have declared a general banking moratorium or general
suspension or material limitation for five consecutive business days on the
extension of credit or in respect of payments in respect of credit by banks
or other lending institutions in the United States.
The foregoing conditions are for the sole benefit of Purchaser and its
affiliates and may be asserted by Purchaser, or Parent on behalf of Purchaser,
regardless of the circumstances (including without limitation any action or
inaction by Purchaser or any of its affiliates other than a breach by Parent or
Purchaser of the Merger Agreement) giving rise to any such condition or may be
waived by Parent, or Parent on behalf of Purchaser, in whole or in part, from
time to time in its sole discretion, except as otherwise provided in the Merger
Agreement. The failure by Purchaser, or Parent on behalf of Purchaser, at any
time to exercise any of the foregoing rights will not be deemed a waiver of any
such right and each such right will be deemed an ongoing right and may be
asserted at any time and from time to time.
SECTION 15. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
GENERAL. Except as otherwise set forth in the Merger Agreement and this
Offer to Purchase, based upon an examination of publicly available information
filed by the Company with the SEC, neither Purchaser nor Parent is aware of (i)
any license or other regulatory permit that appears to be material to the
business of the Company and its subsidiary, taken as a whole, that might be
adversely affected by Purchaser's acquisition of the Shares (and the indirect
acquisition of the shares of the Company's subsidiary) pursuant to the Offer or
the Merger, or (ii) any filings, approvals or other actions by or with any
domestic (federal or state), foreign or supranational governmental authority or
administrative or regulatory agency that would be required prior to the
acquisition of Shares (or the indirect acquisition of the shares of the
Company's subsidiary) by Purchaser as contemplated herein. Should any such
approval or other action be required, it is Purchaser's present intention to
seek such approval or action. However, except as otherwise set forth in the
Merger Agreement or this Offer to Purchase, Purchaser does not presently intend
to delay the purchase of Shares tendered pursuant to the Offer pending the
receipt of any such approval or the taking of any such action (subject to
Purchaser's right to delay or decline to purchase Shares if any of the
conditions described in Section 14 shall not have been satisfied). There can be
no assurance that any such approval or other action, if needed, could be
obtained, or could be obtained
37
without substantial conditions, or that adverse consequences might not result to
the business of the Company, Parent or Purchaser or that certain parts of the
businesses of the Company, Parent or Purchaser might not have to be disposed of
or held separately or other substantial conditions complied with in order to
obtain such approval or other action, certain of which could cause Purchaser to
elect to terminate the Offer without the purchase of the Shares thereunder.
Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions discussed in Section 14, including conditions
relating to the legal matters discussed in this Section 15.
STATE TAKEOVER STATUTES. A number of states throughout the United States
have enacted takeover statutes that purport, in varying degrees, to be
applicable to attempts to acquire securities of corporations that are
incorporated or have assets, shareholders, executive offices or places of
business in those states. To the extent that certain provisions of certain of
these state takeover statutes purport to apply to the Offer or the Merger,
Parent and Purchaser reserve the right to assert that such laws conflict with
federal law and constitute an unconstitutional burden on interstate commerce.
In Minnesota, Section 302A.673 of the MBCA limits the ability of a publicly
held Minnesota corporation to engage in business combinations with an
"interested shareholder" (defined in Section 302A.011 of the MBCA as any
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding shares of such corporation entitled to vote) unless, among other
things, a committee of that corporation's board comprised of all disinterested
directors (defined in Section 302A.673 as a director or person who is neither an
officer nor an employee of that corporation or a related organization, nor has
been an officer or an employee within five years preceding the formation of the
committee) has given its prior approval of either the business combination or
the transaction which resulted in the shareholder becoming an "interested
shareholder."
Section 302A.671 of the MBCA (the "Control Share Act") provides that,
unless the acquisition of certain additional percentages of voting control of an
issuing public corporation (equal to or in excess of 20%, 33 1/3% or 50%) by an
acquiring person is approved by the holders of a majority of the outstanding
voting power of all shares entitled to vote (other than shares held by the
acquirer and certain other persons), the shares acquired at or above any such
new percentage level of voting control will not be entitled to voting rights. In
addition, if the statutory requirements are not satisfied, the issuing public
corporation may redeem the shares so acquired by the acquirer at their market
value. Section 302A.671 does not apply to a cash offer to purchase all shares of
voting stock of the issuing public corporation if such offer has been approved
by a majority vote of the same committee of the disinterested directors of the
issuing public corporation formed in accordance with Section 302A.673 and if,
following the completion of the cash offer, the offeror will own over 50% of the
voting power of the shares of the corporation. Section 302A.671 does not apply
to a control share acquisition of shares of an issuing public corporation whose
articles of incorporation or bylaws approved by its shareholders provide that
the Control Share Act does not apply to control share acquisitions of its
shares. The Company's Articles of Incorporation and Bylaws currently do not
exclude the Company from the restrictions imposed by the Control Share Act.
Section 302A.675 of the MBCA imposes a fair price requirement limiting a
purchaser's ability to acquire shares of a publicly held corporation within two
years following the last purchase of shares pursuant to a takeover offer with
respect to that class, including new acquisitions made by purchase. This fair
price requirement does not apply if the second acquisition is approved by a
committee of that corporation's board of directors comprised of the
disinterested directors formed in accordance with Section 302A.675 of the MBCA
before the purchase of any shares pursuant to the first takeover offer.
As described in Section 11 of this Offer to Purchase, the Company Board and
the Special Committee, which was formed in accordance with Section 302A.673 of
the MBCA, have approved the Offer and the Merger prior to the purchase of Shares
and prior to Parent or Purchaser becoming an "interested shareholder." The
Company has represented in the Merger Agreement, assuming the accuracy of
certain representations of Parent and Purchaser in the Merger Agreement, that
Sections 302A.671 and 302A.673 of the MBCA do not prohibit the Company's
authorization, execution, delivery or performance of the Merger Agreement and
the transactions contemplated thereby, including the Offer and the Merger.
Accordingly, ▇▇▇▇▇▇ and Purchaser believe that the foregoing restrictions do not
apply to them with respect to such transactions.
The Minnesota Takeover Disclosure Law, Minnesota Statutes, Sections
80B.01-80B.13 (the "Takeover Statute"), by its terms requires certain
disclosures and the filing of certain disclosure material with the Minnesota
Commissioner of Commerce (the "Commissioner") with respect to any offer for a
corporation, such as the
38
Company, that has its principal place of business in Minnesota and a certain
number of shareholders resident in Minnesota. Purchaser will file a registration
statement with the Commissioner on May 16, 2000. Although the Commissioner does
not approve or disapprove the Offer, he does review the disclosure material for
the adequacy of such disclosure and is empowered to suspend summarily the Offer
in Minnesota within three days of such filing if he determines that the
registration statement does not (or the materials provided to beneficial owners
of the Shares residing in Minnesota do not) provide full disclosure. If such
summary suspension occurs, a hearing must be held (within 10 days of the summary
suspension) as to whether to permanently suspend the Offer in Minnesota, subject
to corrective disclosure. If the Commissioner takes action under the Takeover
Statute, then Purchaser may not be obligated to accept for payment or pay for
Shares tendered pursuant to the Offer because such action may have the effect of
significantly delaying the Offer. See Section 14 of this Offer to Purchase for
certain conditions of the Offer, including conditions with respect to
governmental actions. In such event, Purchaser may, among other things,
terminate the Offer or amend the terms and conditions of the Offer.
Based on information supplied by the Company and the Company's
representations in the Merger Agreement, neither Purchaser nor Parent believes
that any other state takeover statutes or regulations apply to the Offer or the
Merger. Purchaser reserves the right to challenge the applicability or validity
of any state law purportedly applicable to the Offer or the Merger and nothing
in this Offer to Purchase or any action taken in connection with the Offer or
the Merger is intended as a waiver of that right. If it is asserted that any
state takeover statute is applicable to the Offer or the Merger and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer or the Merger, Purchaser might be required to file certain
information with, or to receive approvals from, the relevant state authorities,
and Purchaser might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In
such case, Purchaser may not be obligated to accept for payment or pay for any
Shares tendered pursuant to the Offer.
ANTITRUST. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the FTC and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and certain waiting period requirements have been
satisfied. The acquisition of Shares by Purchaser pursuant to the Offer is
subject to the HSR Act requirements. See Section 2.
Under the provisions of the HSR Act applicable to the purchase of Shares
pursuant to the Offer, such purchase may not be made until the expiration of a
15-calendar day waiting period following the required filing of a Notification
and Report Form with respect to the Offer, which Parent intends to submit not
later than May 18, 2000. The waiting period under the HSR Act will expire at
11:59 p.m., New York City time, 15 days after the filing date, unless early
termination of the waiting period were granted or Parent received a request from
the Antitrust Division or the FTC for additional information or documentary
material prior thereto. If such a request is made, the waiting period applicable
to the Offer will be extended until 11:59 p.m., New York City time, on the tenth
day after substantial compliance by Parent with such request. Thereafter, the
waiting period may be extended by court order or by consent of ▇▇▇▇▇▇. A request
is being made pursuant to the HSR Act for early termination of the waiting
period applicable to the Offer. There can be no assurance, however, that the
15-day HSR Act waiting period will be terminated early.
Although the Company is required to file certain information and
documentary material with the Antitrust Division and the FTC in connection with
the Offer, neither the Company's failure to make such filings nor a request to
the Company from the Antitrust Division or the FTC for additional information or
documentary material will extend the waiting period.
Shares will not be accepted for payment or paid for pursuant to the Offer
until the expiration or earlier termination of the applicable waiting period
under the HSR Act. See Section 2 and Section 14. Subject to Section 4 of this
Offer to Purchase, any extension of the waiting period will not give rise to any
withdrawal rights not otherwise provided for by applicable law. If Purchaser's
acquisition of Shares is delayed due to a request by the Antitrust Division or
the FTC for additional information or documentary material pursuant to the HSR
Act, the Offer will be extended in certain circumstances.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase by
Purchaser of Shares pursuant to the Offer, either the FTC or the Antitrust
Division could take such
39
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to the
Offer or seeking the divestiture of Shares purchased by Purchaser or the
divestiture of substantial assets of Parent, the Company or any of their
respective subsidiaries. Private parties and state attorneys general may also
bring legal action under federal or state antitrust laws under certain
circumstances. Although ▇▇▇▇▇▇▇▇▇ believes that the acquisition of Shares
pursuant to the Offer would not violate the antitrust laws, there can be no
assurance that a challenge to the Offer on antitrust grounds will not be made
or, if a challenge is made, what the outcome will be.
SECTION 16. FEES AND EXPENSES.
Except as set forth below, neither Parent nor Purchaser will pay any fees
or commissions to any broker, dealer or other person in connection with the
solicitation of tenders of Shares pursuant to the Offer. Purchaser has retained
MacKenzie Partners, Inc. to act as the Information Agent and The Bank of New
York to act as the Depositary in connection with the Offer. The Information
Agent may contact Shareholders by mail, telephone, telegraph and personal
interview and may request brokers, dealers and other nominee shareholders to
forward the Offer materials to beneficial owners. The Information Agent and the
Depositary will receive reasonable and customary compensation for their services
relating to the Offer and will be reimbursed for certain out-of-pocket expenses,
including the fees and expenses of legal counsel. Purchaser and Parent have also
agreed to indemnify the Information Agent and the Depositary against certain
liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws.
Brokers, dealers, commercial banks and trust companies will, upon request,
be reimbursed by Purchaser for customary mailing and handling expenses incurred
by them in forwarding the Offer materials to their customers.
SECTION 17. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. Neither Parent nor Purchaser is aware of any jurisdiction where
the making of the Offer or the acceptance thereof would be in violation of the
laws of such jurisdiction. Subject to the terms of the Merger Agreement, if
Parent or Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will
amend the Offer and, depending on the timing of such amendment, if any, will
extend the Offer to provide adequate dissemination of such information to
holders of Shares prior to the expiration of the Offer. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by one or more registered brokers or dealers that are licensed under
the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION OF BEHALF OF PURCHASER NOT CONTAINED IN THIS OFFER TO PURCHASE OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser and Parent have filed with the SEC the Schedule TO (including
exhibits) pursuant to Rule 14d-3 under the Exchange Act, furnishing certain
additional information with respect to the Offer. In addition, the Company has
filed the Schedule 14D-9, together with all exhibits thereto, pursuant to Rule
14d-9 of the Exchange Act setting forth its recommendation with respect to the
Offer and the reasons for such recommendations and furnishing certain additional
related information. The Schedule TO, the Schedule 14D-9 and any amendments
thereto, including exhibits, may be inspected and copies may be obtained from
the offices of the SEC (except that they will not be available at the regional
offices of the SEC) in the manner set forth in Section 8 of this Offer to
Purchase.
B&N ACQUISITION CORPORATION
MAY 16, 2000
40
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF ▇▇▇▇▇▇ & ▇▇▇▇▇, INC. The following
table sets forth the name, business address, present principal occupation or
employment and five-year employment history of the directors and executive
officers of Parent. The business address of each director and executive officer
is ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, unless otherwise set forth below.
Unless otherwise indicated, each occupation or employment set forth opposite an
individual's name refers to occupation or employment with Parent. All directors
and officers listed below are citizens of the United States.
PRESENT PRINCIPAL OCCUPATION AND EMPLOYMENT
NAME AND BUSINESS ADDRESS AND MATERIAL POSITIONS DURING THE LAST FIVE YEARS
------------------------------------------ ---------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇............................ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ has been Chairman of the Board, Chief Executive
Officer and a principal stockholder of Parent since its inception in
1986. ▇▇. ▇▇▇▇▇▇ has also been Chairman of the Board of
▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇ inc. ("▇▇▇▇▇▇ & ▇▇▇▇▇.▇▇▇ Inc."), Parent's
Internet subsidiary, since its inception in February 1997. Since
1965, ▇▇. ▇▇▇▇▇▇ has been Chairman of the Board, Chief Executive
Officer and the principal stockholder of ▇▇▇▇▇▇ & ▇▇▇▇▇ College
Bookstores ("B&N College"). For more than the past five years,
▇▇. ▇▇▇▇▇▇ has been Chairman of the Board and a principal beneficial
owner of MBS Textbook Exchange, Inc. ("MBS").
▇▇▇▇▇▇▇ ▇▇▇▇▇▇............................ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ has been a Director of Parent since April 1997 and was
appointed Vice Chairman of Parent in December 1997. ▇▇. ▇▇▇▇▇▇ was
Chief Operations Officer of Parent from February 1995 until December
1997. Since January 2000, he has been Vice Chairman and Acting Chief
Executive Officer of ▇▇▇▇▇▇ & ▇▇▇▇▇.▇▇▇ Inc., a position he
previously held from February 1997 to December 1998. ▇▇. ▇▇▇▇▇▇ has
been a director of ▇▇▇▇▇▇ & ▇▇▇▇▇.▇▇▇ Inc. since its inception in
February 1997. ▇▇. ▇▇▇▇▇▇ was President of ▇. ▇▇▇▇▇▇ Bookseller, Inc.
("▇. ▇▇▇▇▇▇"), a wholly-owned indirect subsidiary of Parent, from
July 1993 to February 1995, and he was Executive Vice President,
Merchandising of Parent from January 1987 to February 1995.
▇▇. ▇▇▇▇▇▇ is ▇▇▇▇▇▇▇ ▇▇▇▇▇▇'▇ brother.
▇. ▇▇▇▇ ▇▇▇▇.............................. ▇. ▇▇▇▇ ▇▇▇▇ joined Parent as Chief Operating Officer in December
1997. He joined B&N College in 1988 as President and Chief Operating
Officer and was made Chief Executive Officer in 1995. Prior to that,
he was Executive Vice President of B&N Trade and Mail Order from 1978
to 1988, and Vice President of Merchandising for ▇. ▇▇▇▇▇▇ from 1971
to 1978.
I-1
PRESENT PRINCIPAL OCCUPATION AND EMPLOYMENT
NAME AND BUSINESS ADDRESS AND MATERIAL POSITIONS DURING THE LAST FIVE YEARS
------------------------------------------ ---------------------------------------------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇....................... ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ has been President of ▇▇▇▇▇▇ & ▇▇▇▇▇ Development,
the group responsible for selecting, designing and constructing new
store locations, since December 1995 and is an Executive Vice
President of Parent. From March 1993 to December 1995, ▇▇. ▇▇▇▇▇▇▇
was President of ▇▇▇▇▇▇ & ▇▇▇▇▇ Booksellers, Inc. ("B&N
Booksellers"), a wholly-owned subsidiary of Parent. Until September
1993, ▇▇. ▇▇▇▇▇▇▇ also was Chief Financial Officer of Parent, a
position to which he was elected in September 1988. He was Vice
President, Chief Financial Officer of B&N College from June 1986 to
September 1988. Prior to June 1986, ▇▇. ▇▇▇▇▇▇▇ was an Audit Manager
at the certified public accounting firm of KMG Main Hurdman.
▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇......................... ▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ joined Parent as Chief Financial Officer in March
2000. Prior to joining ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc., ▇▇. ▇'▇▇▇▇▇▇▇ was the
Chief Financial Officer of Publishers Clearing House from October
1998 to March 2000. Prior to that she was the Chief Financial Officer
at BMG Direct from October 1997 to October 1998. From April 1990 to
October 1997, ▇▇. ▇'▇▇▇▇▇▇▇ held various positions at Primedia, a
media and publishing company. She was Chief Financial Officer at two
divisions of Primedia--Newbridge Communications from January 1995 to
October 1997 and Newfield Publications from November 1993 to January
1995. ▇▇. ▇'▇▇▇▇▇▇▇ is a certified public accountant.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇....................... ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ became President of B&N Booksellers in December
1995 and is also a Vice President of Parent. Prior to December 1995,
▇▇. ▇▇▇▇▇▇▇▇▇ was President of ▇. ▇▇▇▇▇▇. He was Vice President of
Store Operations of ▇. ▇▇▇▇▇▇ from September 1991 to February 1995
and was a Regional Director of ▇. ▇▇▇▇▇▇ from July 1989 to September
1991. Prior to 1989, ▇▇. ▇▇▇▇▇▇▇▇▇ was Stores Director for
▇▇▇▇▇▇▇▇/Alco Stores, Inc., a general merchandise retailer.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇........................ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ joined Parent as Senior Vice President, Corporate
Communications and Public Affairs in January 1998. Previously, she
was an executive with Hill and ▇▇▇▇▇▇▇▇, Inc., a worldwide public
relations firm, from 1991 to 1998, where she served as Executive Vice
President and General Manager of Hill and Knowlton's flagship New
York office.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇....................... ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ has been Vice President and Treasurer of Parent
since May 1999 and Vice President and Controller since May 1998. He
joined Parent in April 1996 as Director of Accounting. Prior to
joining Parent, ▇▇. ▇▇▇▇▇▇▇▇ was with Woolworth Corporation (now the
Venator Group) from October 1988 through April 1996. ▇▇. ▇▇▇▇▇▇▇▇ is
a certified public accountant.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇........................... ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ joined Parent in January 1990 as a Director of Real
Estate and became Vice President of ▇▇▇▇▇▇ & ▇▇▇▇▇ Development in
January 1997. Prior to joining Parent, ▇▇. ▇▇▇▇▇▇ was a Director of
Real Estate for S&A Restaurant Corporation, a national restaurant
chain.
I-2
PRESENT PRINCIPAL OCCUPATION AND EMPLOYMENT
NAME AND BUSINESS ADDRESS AND MATERIAL POSITIONS DURING THE LAST FIVE YEARS
------------------------------------------ ---------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇........................... ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ joined Parent in October 1998 as Vice President and
Chief Information Officer. Prior to joining Parent, he was Vice
President and Chief Information Officer of Toys "R" Us from May 1985
to September 1998. Prior to that he was a Trustee of the New York
Medical College, in Valhalla, NY, and serves as a board member of the
IAHD/St. Judes Rehabilitation Institute.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇....................... ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ has been Vice President and Chief Financial
Officer of Retail and Distribution for Parent since February 1999.
Prior to February 1999, ▇▇. ▇▇▇▇▇▇▇▇ was Senior Vice President and
Chief Financial Officer, distribution and information systems, for
the KB Toys Division of Consolidated Stores from November 1996 to
January 1999. ▇▇. ▇▇▇▇▇▇▇▇ began his career on the West Coast with
▇▇▇▇▇▇▇▇/May Company Department Stores from October 1985 to November
1996, where he was Vice President and Controller from September 1993
to November 1996.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ......................... ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ has been Secretary and a Director of Parent since
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ its inception in 1986 and the Chairman of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, legal counsel to Parent, for more than the
1290 Avenue of the Americas past five years. ▇▇. ▇▇▇▇▇ is also a director of ▇▇▇▇▇▇ & ▇▇▇▇▇.▇▇▇
New York, NY 10104 Inc., B&N College and MBS.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ........................ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ has been a Director of Parent since June 1992. As
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇ of January 1998, ▇▇. ▇▇▇▇▇▇ had been a partner in the certified
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ South accounting firm of ▇▇▇▇▇ ▇▇▇▇▇▇ & Company ("▇▇▇▇▇ ▇▇▇▇▇▇") for more
New York, NY 10003 than five years. In January 1998, ▇▇▇▇▇ ▇▇▇▇▇▇ merged into the
accounting firm of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇, and ▇▇. ▇▇▇▇▇▇ became
Chairman of the New York Division of that firm. ▇▇. ▇▇▇▇▇▇ is also a
director of B&N College and a trustee of ▇▇▇▇ Israel Hospital.
▇▇▇▇▇▇▇ ▇. Del ▇▇▇▇▇▇▇ ................... ▇▇▇▇▇▇▇ ▇. Del ▇▇▇▇▇▇▇ has been a Director of Parent since 1999.
Millennium Credit Markets LLC Mr. ▇▇▇ ▇▇▇▇▇▇▇ is co-founder and Managing Director at Millennium
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Credit Markets LLC, an investment banking firm specializing in
New York, NY 10020 acquiring and financing real estate, corporate and project finance
properties. From 1986 to 1996, Mr. ▇▇▇ ▇▇▇▇▇▇▇ was a General Partner
and Managing Director at Lazard Freres & Co. LLC. He is a member of
the Board of Directors of the Consolidated Edison Company of New
York, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, Inc. and Earth Alliance Inc. He is Chairman
of the Governor's Committee on Scholastic Achievement and a member of
the Board of Trustees of the Institute for Public Administration.
Mr. ▇▇▇ ▇▇▇▇▇▇▇ was Chief-of-Staff to New York Governor ▇▇▇▇▇ ▇▇▇▇▇
from 1983-1985, Director of State Operations for Governor ▇▇▇▇ ▇▇▇▇▇
from 1979-1981 and Chief-of-Staff to the Assembly Speaker from
1975-1979. Mr. ▇▇▇ ▇▇▇▇▇▇▇ was Chairman of the Board of Orange &
Rockland Utilities Corp. from 1997-1999.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ....................... ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ has been a Director of Parent since November 1993.
▇▇▇▇▇▇▇ Department Stores, Inc. ▇▇. ▇▇▇▇▇▇▇ is the Chief Executive Officer of ▇▇▇▇▇▇▇'▇ Inc., and he
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇ has been a director of Dillard's since 1968. ▇▇. ▇▇▇▇▇▇▇ is also a
Little Rock, AZ 72201 director of Chase Bank of Texas, NA and Acxiom Corp.
I-3
PRESENT PRINCIPAL OCCUPATION AND EMPLOYMENT
NAME AND BUSINESS ADDRESS AND MATERIAL POSITIONS DURING THE LAST FIVE YEARS
------------------------------------------ ---------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ .......................... ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ has been a Director of Parent since May 1995.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, #▇▇▇ ▇▇. ▇▇▇▇▇▇ is Chief Executive Officer of Akim, Inc., an investment
New York, NY 10024 management and consulting firm, and until June 1997 was Vice Chairman
and Chief Financial Officer of Parent. She joined Parent in January
1991 and held various positions until she was appointed Chief
Financial Officer in September 1993 and Vice Chairman in September
1995. From 1986 to 1990 ▇▇. ▇▇▇▇▇▇ was an investment banker at ▇▇▇▇▇▇
▇▇▇▇▇▇▇ & Co. Incorporated, most recently as a Principal. ▇▇. ▇▇▇▇▇▇
is also a director of Oakley, Inc. and an advisory director of
IntraLinks, Inc.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ....................... ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ has been a Director of Parent since May 1995.
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co. ▇▇. ▇▇▇▇▇▇ has been the Vice President and Chief Operating Officer of
World Financial Center KECALP, Inc., a wholly-owned subsidiary of ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., Inc.,
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ Floor since November 1999. She had been the Chief Administrative Officer
New York, NY 10281 from April 1998 to November 1999. KECALP, Inc. is the General Partner
for a number of limited partnerships which are operated exclusively
for the benefit of ▇▇▇▇▇▇▇ ▇▇▇▇▇ employees. ▇▇. ▇▇▇▇▇▇ had been the
Principal of Probus Advisors, a management and financial consulting
firm, from July 1993 to April 1998, and Vice President and Treasurer
of The Limited, Inc., a national specialty retailing firm, from
October 1987 to June 1993.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇. ..................... ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇. has been a Director of Parent since November
36 ▇▇▇▇▇▇▇▇▇ Farms Road 1993. ▇▇. ▇▇▇▇▇▇▇ formerly was the President, Chief Executive Officer
Newtown, CT 06470 and a director of Nationar, a New York State-chartered commercial
bank providing services to financial institutions and corporations,
from 1983 until his retirement in April 1993. ▇▇. ▇▇▇▇▇▇▇ is also the
Treasurer and a director of New Life of New York City, Inc., a
not-for-profit organization which provides services to disadvantaged
teenagers.
2. DIRECTORS AND EXECUTIVE OFFICERS OF B&N ACQUISITION CORPORATION. The
following table sets forth the name, business address, present principal
occupation or employment and five-year employment history of the directors and
executive officers of Purchaser. The business address of each director and
executive officer is ▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, unless
otherwise set forth below. All directors and officers listed below are citizens
of the United States.
PRESENT PRINCIPAL OCCUPATION AND EMPLOYMENT
NAME AND BUSINESS ADDRESS AND MATERIAL POSITIONS DURING THE LAST FIVE YEARS
------------------------------------------ ---------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ........................... ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ has been Chairman of the Board and a Director of
▇▇▇▇▇▇ & ▇▇▇▇▇, Inc. Purchaser since its inception in April 2000. For a description of
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇. ▇▇▇▇▇▇'▇ present principal occupation and employment and material
New York, New York 10011 positions during the last five years, see paragraph 1 above.
▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇....................... ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ has been Chief Executive Officer of Purchaser
since its inception in April 2000 and has been the Chief Executive
Officer of Babbage's since its inception in November 1996. From 1993
until November 1996, he was a consultant and prior to that time
▇▇. ▇▇▇▇▇▇▇▇ was the President of ▇. ▇▇▇▇▇▇.
I-4
PRESENT PRINCIPAL OCCUPATION AND EMPLOYMENT
NAME AND BUSINESS ADDRESS AND MATERIAL POSITIONS DURING THE LAST FIVE YEARS
------------------------------------------ ---------------------------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇........................ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ has been the President, Chief Operating Officer
and a director of Purchaser since its inception in April 2000 and has
been the President and Chief Operating Officer of Babbage's since its
inception in November 1996. From December 1994 until May 1996,
▇▇. ▇▇▇▇▇▇▇▇ was the President of NeoStar Retail Group, Inc. and a
director of such company from December 1994 until shortly after his
resignation as President.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.......................... ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ has been a Vice President and Chief Financial
Officer of Purchaser since its inception in April 2000 and has been
Vice President and Chief Financial Officer of Babbage's since its
inception in November 1996. Prior to that time, he held various
positions with Parent. ▇▇. ▇▇▇▇▇▇▇ is a certified public accountant.
▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ ........................ ▇▇▇▇▇▇▇ ▇'▇▇▇▇▇▇▇ has been a Vice President of Purchaser since its
▇▇▇▇▇▇ & ▇▇▇▇▇, Inc. inception in April 2000. For a description of ▇▇. ▇'▇▇▇▇▇▇▇'▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ present occupation and employment and material positions during the
New York, New York 10011 last five years, see paragraph 1 above.
I-5
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each Shareholder or his, her
or its broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
THE BANK OF NEW YORK
BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND OR
Tender & Exchange Department (For Eligible Institutions Only) OVERNIGHT COURIER:
P.O. Box 11248 (▇▇▇) ▇▇▇-▇▇▇▇ Tender & Exchange Department
Church Street Station For Confirmation Telephone: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-1248 (▇▇▇) ▇▇▇-▇▇▇▇ Receive and Deliver Window
New York, New York 10286
------------------------
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
Any questions and requests for assistance or additional copies of this
Offer to Purchase, the Letter of Transmittal and related materials may be
directed to the Information Agent at its address and telephone number set forth
below. Shareholders may also contact their broker, dealer, commercial bank or
trust company for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[MacKenzie Partners, Inc. logo]
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇ (Call Collect)
or
CALL TOLL-FREE (▇▇▇) ▇▇▇-▇▇▇▇